drsohn.com: "Comments on FOMC Meeting"
federalreserve.gov
"Short-Term Energy Outlook – April 2003"
eia.doe.gov
"US Economic Indicators"
205.232.165.149
"International Economic Trends", 5/03:
research.stlouisfed.org
quote.bloomberg.com
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thestreet.com
>>>By Christopher Edmonds
Special to RealMoney.com
05/03/2003 12:22 PM EDT
Buffett continues to believe the economy is struggling. "The economy is sluggish, has been for a long time," Buffett noted, reminding investors he opined the economy was in recession in a special letter to shareholders after the tragedies of Sept. 11, 2001. "What has happened is that really since late 2000 housing and autos have done quite well but the rest of the economy has been quite sluggish and it continues."
With the weak economy, Buffett noted the "dramatic decline" in interest rates, saying he didn't think he would see such "low levels" in his lifetime. He hinted there may be more to come. "It [the Fed Funds rate] might go even lower." <<<
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drsohn.com
>>> Comments on FOMC Meeting
5-6-03
Sung Won Sohn
612 667 7498
The Federal Reserve Board has decided to stand pat until post-war economic data give a better fix on economic growth. In addition, the possibility of a deflation has become an increasing concern. Evidently the Federal Reserve believes that the economic rebound won’t be strong enough to allay deflation concerns. The probability of another cut in the interest rate on June 24 has increased significantly. The deflation concerns give ammunition to the President’s tax cut.
Chairman Greenspan has three issues on monetary policy: the economy, possible deflation and his legacy.
In earlier comments, Greenspan stated that the economy should rebound after the war. However, there is little evidence that the economy is rebounding. It will be June and July before we find out if economic statistics confirm Greenspan’s economic outlook. The central bank will cut the interest rate at the June 24 meeting of the FOMC if economic strength does not materialize.
Deflation is a major concern for chairman Greenspan. After studying Japan, the Federal Reserve concluded that the Bank of Japan didn’t recognize deflationary symptoms early enough. Japan underestimated the consequences of the bubble and was too optimistic, thus keeping interest rates too high and too long. The Federal Reserve is determined not to repeat the same mistake in managing the post-bubble economy in the U.S. Chairman Greenspan wants to err on the side of caution, especially because inflation won’t be a problem in the near future. The Federal Reserve already hinted at the possibility of purchasing Treasury bonds in order to increase money supply and prevent bond yields from rising.
His legacy as the longest serving chairman of the Federal Reserve Board also is important to him. His legacy depends on his ability to revive the sputtering economy and avoid deflation. His third four-year term as chairman ends in June of 2004. Even though President Bush will reappoint him for another four-year term as chairman, his tenure could end in January 2006. Chairman of the Federal Reserve Board must be one of the seven governors. Each governor is appointed for a term of fourteen years and Greenspan’s term as governor expires in January 2006. We expect him to serve another full four-year term.<<< |
