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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (56865)	8/22/1999 1:45:00 PM
From: kendall harmon	Read Replies (1) \| Respond to of 120523

More on the fed and the economy: Today's atlanta journal-constitution accessatlanta.com It looks like everybody's trying to spoil the party. Georgia State University economist Donald Ratajczak came out with a forecast last week saying another interest-rate increase by the Federal Reserve will be a drag on the economy. Economists at First Union declared that "gloom hangs over the bond market," which is especially sensitive to mere whiffs of economic trouble. Then came Jack Guynn, president of the Federal Reserve Bank of Atlanta and a participating --- but not voting --- member of the Federal Reserve's policy-making Open Market Committee. That committee meets on Tuesday and is widely expected to raise short-term interest rates a second time this year in an early assault on inflation. The very idea that the Fed would raise interest rates twice in such a short period is something of a shocker, given the fact that we've had so much good economic news for so long. But then, good news is the problem, Guynn said Friday in a speech to a bankers group. The economy has been so good for so long, he said, we have come to mistake great times for normal times. Guynn's term for this attitude is "the institutionalization of unrealistic expectations" --- a mouthful. "It's the idea," he said, "that three consecutive years of nearly 4 percent real (economic) growth is no longer exceptional but merely average." "For investors," he added, "it's the conceit that anything less than 20 percent growth in the Dow Jones industrial average is unacceptable." The tenor of Guynn's remarks suggests that he favors a Fed tightening of credit or at least is convinced it will happen. Some commentators have taken the Fed's renewed interest in economic restraint to be Chairman Alan Greenspan's backpedaling from the concept of a "new economy." The "new economy" thesis holds that massive investment in information technology in the last 15 years has made U.S. industry more productive without raising labor costs. This has made it possible for the first time in history to have economic growth, low unemployment and minimal inflation at the same time. The old rules held that sustained growth and tight labor markets eventually push wages higher, and eventually prices rise to cover wages. The problem with economics is that there's no laboratory where competing theories can be tested. The world is the lab for economic policy-makers, and it's likely that the Fed simply isn't prepared to tamper too much with conventional wisdom. The Fed, after all, has a reputation for taking away the punch bowl just as the party is getting interesting. Drink up, it's late.