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Pastimes : Ask Mohan about the Market
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To: t36 who wrote (7485)11/9/1997 11:30:00 AM
From: studdog  Read Replies (3) of 18056
 
Great discussion of possibility of Fed tightening. I think there is a scenario where the Fed may actually lower rates. Usually tightlipped AG has just pointed out that our low inflation is even lower. This I think is due to the inability of companies to raise prices and in fact they are constantly lowering them (i.e. CPQ). This is necessitated and abetted by global competition and overcapacity (part of the deflation scenario). How do you difuse deflation and help out Latin AMerica and Asia currencies at the same time? Lower rates!!! Lowering rates will boost the economy, increasing demand, sopping up excess inventory and capacity, thereby counteracting deflation. The only reason not to lower rates is the fear of inflation. But, AG just told us inflation is not only benign it is more benign than we even thought. This could be the political cover for lowering rates.

One problem I just thought of for the Fed is that lowering rates would
would cause a market rise and get us into even more dangerous valuation territory. However if the economy is revved up enough increased earnings might bring things more into balance.

I don't have any firm conviction here, I'm just outlining a scenario and would appreciate any thoughts. It will sure be interesting.

Karl
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