I don't even know where to begin
It this guy really as much an idiot as it appears to me?
(COMTEX) B: Rate Cuts Work, Says Chief of Dallas Federal Reserve Bank
B: Rate Cuts Work, Says Chief of Dallas Federal Reserve Bank
Dec 03, 2002 (The Dallas Morning News - Knight Ridder/Tribune Business News via
COMTEX) -- Even before the Federal Reserve policy-makers cut rates by a
half-point last month, analysts questioned whether the move would do any good.
After all, central bankers had already brought rates down to 40-year lows. What
could rates of 1.25 percent accomplish in a seemingly stalled economy?
Dallas Federal Reserve Bank president Robert McTeer offers this observation:
"Monetary policy is a lot like vodka. You say it's not working and it sneaks up
on you."
More seriously, he said, the Fed's dozen cuts have muted the economic downturn.
"I don't know of any logic that says, because they were already low, a rate cut
won't help," he said. "Certainly if we hadn't eased monetary policy, things
would have been much worse."
Despite the gloom that has recently settled over many economy-watchers, Mr.
McTeer - ever the Federal Reserve's maverick - is finding reason to be
optimistic.
"Lately, most of the surprises have been on the positive side," he said. "I
personally think the economy's looking pretty good right now. It's showing more
signs of life than it was a month or two ago."
He points to a surprising 4 percent growth in the third quarter's gross domestic
product. "And if you can believe this morning's paper, we're off to a reasonably
good start on Christmas," he said during an interview in his office Monday
morning.
He also restated his faith in technology as an economic driver. And he defended
the Fed's handling of the downturn.
"I think we've learned that front-loading policy is a good idea," he said. "I
think we've learned to give our monetary policy out with a tablespoon rather
than a teaspoon."
"All I'm saying is we will continue to be as aggressive as is needed and as is
required," he added.
In fact, Mr. McTeer - and another of his Fed colleagues - wanted the Fed to
reduce rates at its Sept. 24 meeting. But the majority opted to leave rates
unchanged. The dissent got noticed. And the next time policy-makers met - in
November - they lowered rates.
"I don't mean that I convinced them," he said. "I just arrived at that
conclusion a little earlier than my colleagues."
The November rate cut - the only one this year after a record 11 cuts in 2001 -
will spur further activity in an already robust housing market - one of the
economy's few bright spots, he said. There are still mortgages to refinance.
"Well, I haven't refinanced yet," he said. "I imagine all the low-hanging fruit
- all the really high mortgage rates - have been refinanced. But in economics,
everything works at the margins. And so certainly going down a little bit lower
brings more people into it."
The rate cut will further buttress consumers, whose spending has nearly
single-handedly kept the economy afloat. He said he believes they will continue
to shoulder the burden until business investment - essentially nonexistent
throughout the downturn - comes back into play.
Businesses "can't just keep increasing output without either hiring more workers
or investing in more technology or doing something," he said.
He had expected corporate America to have already rejoined the economic table.
"I don't know how long it's going to be," he said. "It's already taken longer
than I would have guessed."
Not looking down He dismisses talk about a double-dip recession or deflation.
"Most price indexes show inflation at around 2 to 2.5 percent," he said. "That's
not close enough to zero to scare me."
"We still have inflationary psychology around here because people are still
responding to sales," he added. "I think Dallas and Houston would be the last
two places in the whole world" to stop shopping.
That's not to say that North Texas, in particular, isn't hurting. Some of the
boom of the technology-driven economy has evaporated.
"There was more foam and less beer than we thought," he said.
"And then I say, even so, it was a remarkable period. There was still a lot more
beer than before."
"So while things weren't quite as good as we thought, they were still damn
good," he added.
While he said he thinks it'll be a few years before technology dominates again,
it will continue to make the economy dynamic: "I believe that technology - as
soon as we get the next new thing - will be up and running again."
The thousands of the region's telecom workers who have lost jobs in the last two
years will find new work and probably in technology, he said. "These are skilled
people," he said.
The next chairman?
When it comes to his own employment prospects, Mr. McTeer demurs. In the last
few years, his name has come up among economy-watchers as a possible successor
to Fed Chairman Alan Greenspan, whose term expires in 2004.
He smiles; he's seen those reports, too. "I don't take it seriously," he said.
"I'd call it irrational exuberance."
He attributes the attention to his penchant for quoting country music lyrics in
his speeches on the economy. Known as the head of the "Free Enterprise Fed," Mr.
McTeer is no garden-variety central banker.
For one, he carried around a "New Paradigm Frog" to illustrate economic
conditions during the boom. (The frog is currently an endangered species, he
said, and is in hiding.) "I just have more fun, and it makes me a little bit
different," he said. "I guess if you're herding cattle, the maverick is the one
who's sort of separate from the herd and it's easier to lasso."
By Angela Shah
To see more of The Dallas Morning News, or to subscribe to the newspaper, go
to dallasnews.com.
(c) 2002, The Dallas Morning News. Distributed by Knight Ridder/Tribune Busines
News.
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