Fed statement & my commentary:
Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels.
This is more of their continuing campaign to talk down the long bond. The effect of lower ST rates is partly negated, if LT rates don't come down, too. I'm sure the Fed is watching and worrying about the recent upturn in LT rates.
To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative.
Now, this is interesting. Do they really see signs of a bottom, or are they just trying to boost confidence? Stock investors, particularly tech sectors like semi-equips, seem to be seeing and believing those same signs.
The Committee continues to believe that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.
Boilerplate.
Although the necessary reallocation of resources to enhance security may restrain advances in productivity for a time, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.
Greenspan is still a Believer in the NewEconomy, where higher productivity leads to the Nirvana of permanently high growth, with both unemployment and inflation trending toward zero. The recent unpleasantness does not indicate a change in trend, it's "un-usual". Would 1999, then, be "usual"? Does he expect demand levels to rebound to those levels? Seems like that's what the statement is saying. I'm deeply sceptical of this, as 1999 demand levels (especially for tech items) is only possible with ever-higher debt levels. Income levels, with a modest but positive savings rate, don't support 1999-level demand. |
