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To: Road Walker who wrote (98100)	2/3/2000 8:02:00 AM
From: GVTucker	Respond to of 186894

John, RE: I have serious reservations about the Feds power in the "new economy", when I buy into the "new economy" concept. I think that you overstate the power of the Fed, or at least the extent that the Fed uses what power it has. A decade or two ago, the Fed would have seen unemployment at its current level and raised rates sharply. That is old school economics. This Fed has wisely not chosen that route. Instead, I really believe this Fed has let the market set rates. Look at the movement of the government bond markets. The Fed has only raised rates when bonds had already signaled that rates needed to rise. If the Fed hadn't raised rates in these circumstances, the $'s strength would have disappeared, which would have brought on inflation much more quickly than any other action could. Over the past 3 years, the Fed has been a reactive body, not a proactive body. That has been a key factor in keeping the expansion going as long as it has. It has increased inflation risk (as I noted elsewhere), but, as we have seen in the economy's performance, it is probably a risk worth taking. Of course, ex post, that is an easy conclusion. In 1997, before we had seen the evidence, that was a tougher call, and I commend the Fed's restraint.