The Justa & Lars Honors Bob Brinker Investment Club Message Board

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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club

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To: MrGreenJeans who wrote (5399)	5/27/1999 6:20:00 AM
From: Justa Werkenstiff	Read Replies (4) of 15132

MGJ: Re: "After the first increase the spin was that the job was done and there would be no more increases in the foreseeable future. Greenspan proceeded to raise the rates more than once that year and one of the greatest crashes of all time occurred in the bond market far surpassing the 1987 stock market crash." 1994 was the year of the preemptive strike. The economy was cooking at an unsustainable rate of growth according to the Fed. model and the fear of inflation caused the Fed. to act. BUT things have changed since then. The Fed. 1994 model did not consider PRODUCTIVITY gains. This lesson was learned only in hindsight and the conclusion was that the economy can grow faster without any inflation because of the productivity gains being registered. So, the question is, what is the Fed. policy toward inflation: (1) preemptive or (2) wait to see it in the numbers? I think it leans toward the latter policy but we are on new ground. I think any thinking about the market takes on secondary importance in the grand scheme of things in the sense only that the wealth effect has causes more consumer spending.

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