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Well, as I see it, this is the tweedle dee tweedle dum spin strategy of the modern day federal reserve. They wheel out various governors or high fed officials who take opposite positions in order to cover all bases and on balance say nothing meaningful . After all, the fed is probably as highly politicized as ever in these days of unprecedented public participation in the US equity markets. Therefore, like any other highly politicized situation, saying nothing is the safest strategy. Greenspan talks of the risks of deflation and inflation. Okay, we know that both contain financial, social, and political risk, but which will it be? He doesnt know any more than you or I at this point. Nonetheless, I do not think the fed will raise rates due to domestic fundamental economic conditions until the asian crisis is put to bed for good. And I tend to agree with this latest fed governor-I think the economy will feel nominal effects from the Asian crisis and will continue to grow at a rate in excess of the inflation stable rate risk free rate of growth. Therefore, I feel that an increasing rate inflation isin the cards in the second half of this year. For now, the fed doesnt dare restrict the money supply nor raise rates, prescriptions called for due to the already overheating economy. Lets not forget that all the rhetoric about the US slowdown is nothing but speculation and words-the numbers show an accelerating economy. Only the Wall Street pundits are smart enough to know that we will slow down-and I wouldnt bet your money on their opinions. I'll stick with Steven Roach of Morgan Stanley-shave off about a half of percentage point for US economic growth-thats about it. So, in the second half, the fed will seriously want to raise rates but may have their hands tied. This is going to help propel the currently building ingredients for a upwardly moving (albeit from a low base) rate of inflation for 1998-an event I personally will welcome. |
