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To: Lee Lichterman III who wrote (22874)	8/12/1999 3:54:00 PM
From: Challo Jeregy	Read Replies (2) \| Respond to of 99985

Lee, I am sure that there is much going on behind the scenes. I feel certain that Greenspan will be gone sometime shortly before or after the election. In fact, from what I've heard, that seems to be a given. The real problem would be if he leaves sooner than that. And if that is announced at the FOMC meeting, well, I'll just say that cash is king! <g> I'm certainly no economist, so don't know if we need an increase in rates. But I sure see prices slowly rising in some areas. When I start thinking about all of the underlying things that could be going on in the financial areas of this world, my imagination goes crazy! It certainly does get spooky. The thing is, this kind of stuff has been going on for years. But with the internet, more people are aware of it. Ah, a good argument for tech. Go AOL! <g>

To: Lee Lichterman III who wrote (22874)	8/12/1999 4:11:00 PM
From: Les H	Respond to of 99985

As I recollect, Clinton's yet to get the two successors to the Fed board appointed to replace his prior appointments who quit. If Greenspan quit, it might actually become more hawkish. Bank of Montreal Economics This document is based on information available as of July 22nd, 1999. The recent data suggest that growth has moderated from its lofty pace of the past year. Retail sales rose at an annual rate of 7.9% in Q2, still strong but only half the rate of Q1. This means that consumer spending likely moderated to a 4% clip after soaring 6.7% in the first quarter. As well, home building has cooled off from its record pace because of rising mortgage rates. Moreover, a growing trade deficit continues to act as a key, albeit diminishing, drag on GDP. In May, the trade deficit ballooned to a record high of $21 billion. Overall, GDP growth likely moderated to an annual rate of 2ó - 3¬% in the second quarter from 4.3% in the first quarter and 6.0% in the fourth quarter. This range denotes a slight downward revision compared with our previous estimate of 3.3% in the June IER. Growth is expected to remain above 3% for the remainder of the year. Buoyed by recent strong gains in employment, incomes and stock prices, consumer spending should continue to anchor the expansion. Moreover, the moderating influence of the Asian crisis on manufacturing is starting to wane. The June NAPM survey showed the highest level of manufacturing activity since July 1997 ? when a devaluation of the Thai baht signaled the beginning of turmoil in Asian capital markets. Despite robust growth and tight labour markets, consumer inflation remains dormant. The consumer price index remained flat for the second consecutive month in June. This lowered the annual rate of inflation to 2.0% from 2.1% in May. Outside of a few areas ? namely medical care, energy and tobacco products ? prices remained remarkably well behaved in June. In fact, some prices, like those for new motor vehicles and clothing, continued to fall. Although consumer prices remain tame, tentative signs of cost pressures are emerging. The NAPM survey suggests that prices paid for materials are starting to rise after falling steadily in the previous year. The same survey suggests that supplier delivery times are slowing and unfilled orders are rising. Moreover, with jobs easy to find, workers are more willing to leave their current employer, in many cases for a higher-paying job. The June employment report showed that 14% of the unemployed had quit their previous jobs ? the highest percentage in more than eight years. Continued growth above 3% will further strain the economy?s productive capacity. It is highly doubtful that firms can continue to raise productivity growth to meet additional demand. As well, the participation rate ? the proportion of the working-age population that is working or seeking work ? is unlikely to continue rising. It is more likely that labour shortages will intensify. This will lead to rising wage and cost pressures, which in turn will encourage companies to raise prices to preserve profit margins. The risks still point toward higher inflation and tighter Fed policy, a view echoed by Chairman Greenspan in a hawkish-sounding Humphrey-Hawkins testimony to Congress on July 22. The Chairman said that the June 30 rate hike did not "put the risks of inflation going forward completely into balance." As a result, the Fed would need to be "especially alert to inflation risks" given the tightness in labour markets and a possible slowing in productivity growth. Greenspan warned that the Fed would "act promptly and forcefully" to signs of rising inflation pressures. There are a number of factors on Greenspan?s worry list for inflation. First, the influence of several special factors that acted to dampen inflation in the past, like falling commodity prices and a rising US dollar, are now waning. Second, productivity is unlikely to keep accelerating. Third, despite wild fluctuations, the stock market continues to march higher, supporting consumer spending. In our view, above-potential growth, a lower unemployment rate and higher inflation will spur Fed tightening in coming quarters. We believe the reports on Q2 employment costs and July employment will likely prompt the Fed to raise rates a quarter point at the August 24 FOMC meeting. The former report should confirm a slight upturn in wage growth, while the latter is likely to show a further tightening in labour markets. The fed funds rate is expected to rise from a current 5.0% to 6.0% by the middle of next year. Yields on 30-year Treasuries are expected to rise from 5.9% to 6.8% over the same period. Despite persistent expectations of Fed tightening, the US dollar has weakened against most of the major overseas currencies in recent weeks. A rise in the trade deficit in May to a record high likely suggests that the US dollar is overvalued. Moreover, the overseas data point to a continued recovery in the UK, Euro-zone and Japanese economies. While the US dollar will likely receive support in the year ahead from anticipated Fed tightening, it is clear that the long-term trend is downwards. There are two key risks to our outlook for the US economy and interest rates. In the near term, inflation could remain in hibernation for longer than we think, thereby delaying or limiting the extent of Fed tightening this year. This would result in faster-than-expected economic growth in 2000. At the same time, a delay in Fed tightening could aggravate the inflation tendencies that we believe have already emerged. This would necessitate aggressive Fed tightening next year and raise the risk of a recession in 2001.

To: Lee Lichterman III who wrote (22874)	8/12/1999 4:19:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

Lee, there is absolutely no doubt in my mind that the Fed is subject to heavy political pressure from the administration. Clinton surely knows that he can thank the asset bubble for his popularity. and i wouldn't be at all surprised if he thought that the pricking of the bubble is best left to the next administration. we all know that it cannot go on forever and it seems there has a sorrily mistaken belief set in among officials that it is of no consequence if the bubble is allowed to inflate further. needless to say, there are examples throughout history that prove that asset bubbles ultimately induce huge setbacks for future economic development once they pop. but tell that to a politician... regards, hb