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To: scotty who wrote (23326)	8/18/1999 5:01:00 PM
From: Les H	Respond to of 99985

INSIGHT: CAUTIOUS MOOD MAKES AGGRESSIVE FED ACTION UNLIKELY 14:07 EDT 08/18 By Steven K. Beckner Market News International - Though the Federal Reserve is likely to continue on a moderately more restrictive course there does not seem to be any eagerness to push monetary policy aggressively in that direction just yet. The emerging consensus on the Fed's policymaking Federal Open Market Committee is that while budding inflation pressures and economic imbalances are a source of mounting concern, they are not yet a cause for alarm or for dramatic policy moves, Market News International understands. Some analysts have predicted the Fed will not only raise the federal funds rate from 5% to 5.25%, but also adopt a tightening bias and/or raise the discount rate from 4.5% to 4.75% at next Tuesday's FOMC meeting. Nothing is preordained, but the predominant mood among Fed policymakers is to take a cautious approach to adjusting the funds rate upward -- incrementally withdrawing the emergency liquidity pumped into the economy last fall and, in the process, validating higher market rates. Despite relatively sanguine producer and consumer price reports, the Fed remains on heightened alert to potential inflation growing out of cost pressures, particularly on the labor front but also in the industrial commodity area. Growth in labor compensation that outstrips productivity growth must ultimately drive up prices, the Fed fears. So recent signs of accelerating labor costs are a concern. But that concern is ameliorated somewhat by a belief that the productivity and profit picture remains relatively congenial to price stability, despite disappointing second quarter data on output per hour worked. There were no upside surprises in either the PPI or the CPI last month. In line with expectations, the July PPI was up 0.2% overall but was flat excluding food and energy. The CPI rose 0.3% overall and 0.2% on a core basis, with much of the rise due to presumably non-repeating jumps in airline fares and cigarette prices. The Fed's beige book survey prepared for the upcoming FOMC meeting uncovered "no evidence of any broad-based pickup in consumer price inflation." However, the Fed is focused much more on what has been happening to the business cost structure and what is likely to happen in months to come than on last months' price indices. Of greatest concern is the extreme tightness of labor markets. As feared, growing shortages of workers have been pushing up labor compensation more rapidly. Average hourly earnings rose 0.5% in July, following a second quarter in which the Employment Cost Index rose 1.1%. Rising wages don't worry the Fed so long as they are consistent with productivity growth, but as Fed Chairman Alan Greenspan warned on May 6, "If productivity growth should level out or actually falter ... inflationary pressures could reemerge, possibly faster than some currently perceive feasible." Greenspan's worst fears seemed to have been realized when the Labor Department announced that non-farm productivity growth had slowed from 3.6% in the first quarter to 1.3% in the second quarter, while labor compensation rose 5.1%, with the result that unit labor costs rose 3.8%. However, the Fed views those second quarter productivity figures with considerable suspicion. The mainstream view is that, corrected for statistical anomalies, productivity almost certainly grew significantly faster than the Bureau of Labor Statistics calculated. The Fed is also comforted by signs of improved profit margins. So long as productivity continues to grow at an adequate pace and profits are not squeezed, the inflation threat can be minimized, it is hoped. That does not mean, however, that the Fed is sanguine. The Fed continues to worry that, going forward, some combination of slowing productivity growth and accelerating labor and material costs will narrow profit margins and force price increases. To preempt inflation, as well as to prevent potentially disruptive economic imbalances from worsening, demand must slow, it is felt. So far, however, the Fed does not see convincing evidence demand is slowing satisfactorily. Although housing demand is expected to cool, consumer spending has remained fairly strong, and demand from abroad has been picking up. So, while inflation looks benign at the moment, the Fed is not confident it will remain that way if the economy does not cool. Market interest rates -- down from recent highs but still far above last fall's lows -- are not seen guaranteeing the desired cooling of demand. How much more Fed rate action will be needed to insure that result, and how soon, is unsure. But that more is needed is presumed. The initial 25 basis point tightening on June 30 is not viewed as adequate to the task. While wary of precipitating a sharp decline in stock prices, the Fed is equally conscious that highly valued shares have been fueling demand and wants to avoid doing anything to spur further surges in asset prices that could spillover into prices for goods and services. bondsonline.com

To: scotty who wrote (23326)	8/18/1999 5:03:00 PM
From: Mike Learner	Read Replies (1) \| Respond to of 99985

Yesterday, Gold was up so as the market while today, dollar, gold, and market all were down!!!! What's going on? ML

To: scotty who wrote (23326)	8/18/1999 5:04:00 PM
From: Les H	Respond to of 99985

DOLLAR?S FREEFALL CONTINUES The dollar has slipped to a six-month low against the yen, which has put pressure on U.S. equity prices. Ichizo Ohara, an aide to Prime Minister Obuchi, said ?Japan is not in a situation where the government can take its own action or intervene in the currency market.? Ohara added the government ?won?t make a fuss? if the yen trades in the 110-115 area against the dollar. These comments imply Japan is abandoning its currency intervention policy. A weak dollar erodes the value of U.S. assets of foreign investors. The dollar currently stands at 111.82 yen, down 2.1 yen. France reported its retail sales rose 1.7%. The U.K. reported its retail sales rose .1%, while Spanish retail sales rose 3.7%. These numbers would appear to confirm the economic acceleration in Europe. The euro rose to $1.0541.