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To: Les H who wrote (37516)	1/15/2000 1:11:00 PM
From: Jacob Snyder	Respond to of 99985

re: "Any concerns about Greenspan's speech melted away after softer-than-expected inflation data for December." People are hearing what they want to hear. Greenspan has said that the CPI is not what he watches or worries about.

To: Les H who wrote (37516)	1/15/2000 1:41:00 PM
From: Bridge Player	Respond to of 99985

<< Wall Street deaf to Greenspan's wealth effect worries By Marjorie Olster >> Here is another view, from theStreet.com: Fascinating, in the light of that speech, that the market rallied like it did. BP << Greenspan, Signaling New Focus, Turns the Guns on the Markets By David A. Gaffen Staff Reporter 1/13/00 10:02 PM ET Here comes the pain. Federal Reserve Chairman Alan Greenspan, in his first major speech since late October, brought it all down on the markets. The chairman delivered a series of harsh remarks, focusing on the wealth effect and whether labor and productivity can continue to meet the stellar pace of demand. Tonight's remarks at the Economic Club of New York up the likelihood that the Fed will take forceful action at the Feb. 1-2 Federal Open Market Committee meeting, raising the target fed funds rate by 50 basis points rather than just by 25 basis points, which the market is already expecting. "It may be many years before we fully understand the nature of the rapid changes confronting our economy," the chairman gravely warned. "Regrettably, we at the Federal Reserve do not have the luxury of awaiting a better set of insights into this process. Our goal ... is to extend the expansion by containing its imbalances and avoiding the very recession that would complete a business cycle." The chairman, like many of his recently tough-talking colleagues, must have felt a balanced, typical, on-the-one-hand-on-the-other-hand style of address wouldn't be an adequate warning to the markets that the Fed could take aggressive action come the beginning of February. Rather, he was even more candid than usual on his views of stock prices and economic theory. As Salomon Smith Barney economist Brian Jones said earlier in the day, "If everyone expects you to [raise 25 basis points], does it really change your behavior?" Perhaps most significantly, Greenspan for the first time fully grabbed hold of the concept of demand fueled by a "wealth effect" specifically stemming from rising equity prices. In previous speeches Greenspan had made a point of recognizing that gains in home equity, along with shocks that produced the lowest long-term interest rates in almost 30 years, were just as responsible -- or more -- for the pace of consumer demand. Wealth Effect Moves to the Forefront But economists, as TheStreet.com noted in a story earlier today, have given the subject more thought recently, as has Greenspan. With the economy not having slowed an inch in 1999, the chairman drew a direct link between consumer spending and stock-market wealth. "If capital gains had no evident effect on consumption or investment, their existence would have no influence on output or employment either," the chairman said. "But this is patently not the case. Increasing perceptions of wealth have clearly added to consumption and driven down the amount of saving out of current income and spurred capital investment." Meeting this demand is what's causing additional pressure on the economy. The U.S. continues to import goods at a record pace (the trade deficit stands at a near-record $25.4 billion) and draw down the pool of available workers. Greenspan maintained that, ultimately, there "has to be a limit to how far the pool of available labor can be drawn down without pressing wage levels beyond productivity." Even with the unemployment rate at a 30-year low of 4.1%, wage inflation has been more anecdotal than factual. And Greenspan even doubts the reliability of NAIRU, or the nonaccelerating inflation rate of unemployment, which states that inflation will pick up once the employment rate ticks below a certain point. But Greenspan doesn't seem to want to know what the limits are. Whether the markets will care is another matter. >>