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Interest Rates, Inflation and the Federal Reserve
Federal Reserve Chairman Alan Greenspan has used interest rates to guide the "new economy," as stock market indices have achieved unprecedented heights. However, the spike in oil prices seems to have taken economists and politicians by surprise. Do inflationary dangers such as the dramatic increase in oil lurk behind the seemingly rosy economic picture? If interest rates continue to rise, will the stock market fall?
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(94 previous messages)
bobx1 - 09:20am May 26, 2000 EDT (#95 of 104)
Any guesses on Fed actions in coming months?
It seems to me that June and July will be critical. The Fed historically does not like to be doing major moves in the middle of a Presidential election; the Fed has generally stayed out of the exchange markets and interest rate markets in the months before an election November, unless a major outside event, ie Latin America blowing up, Mexico tanking, etc, causes it to make some short term "stability reassurance" moves...
Mr. Greenspan has only three options; raise rates .5%, raise rates .25%, or do nothing... The Fed can really only do these during June or July, absent some unusual circumstances...
Comments?
murphytune - 12:00pm May 26, 2000 EDT (#96 of 104)
In regard to alcest's recent posts, the savings rate notion is a little fuzzy to me. For one thing, there's Japan, a country with a very high savings rate that's trapped in economic doldrums. And, depending on the definition, the U.S. savings rate can look good or bad. If you include investment in housing, stock increases, debt reduction, and Social Security contributions, the savings rate doesn't look as frightening. Whatever people do with their money ? from putting it in a CD to purchasing golf clubs ? it's out there fueling the economy (unless they stuff it in a mattress). Companies looking for R&D capital will find it through one source or another. I don't see the connection to savings rates. High interest rates certainly would incourage traditioinal kinds of saving, but wouldn't they also be a barrier that would restrict access to R&D capital?
lepinluee - 01:01pm May 26, 2000 EDT (#97 of 104)
Another option:He can also raise rates and make alarmist comments about the stock market, really stir things up and prove his own worth!
alcest - 02:21pm May 26, 2000 EDT (#98 of 104)
murphytune - 12:00pm May 26, 2000: "If you include investment in housing, stock increases, debt reduction, and Social Security contributions, the savings rate doesn't look as frightening".
Spending on housing is just spending, investment means purchase of machinery, factories or other production means which produce rents or dividends. Same for Social Security. Debt reduction has not really started yet, although deficit elimination was a very positive move. Now, regarding stock increases, this is neither investment, nor savings, nor a real growth of our wealth, considering that dividends have not increased accordingly. This is like saying: our properties are always the same, but let's convince each other they are worth 2, or 3, or 10 times their real value, so we shall all be rich. This is not dissimilar to the situation in Japan before their real estate bubble bust: they felt rich because their properties were overvalued, but when the bubble inevitably deflated, they found themselves in trouble.
thewolfatlarge - 05:31pm May 26, 2000 EDT (#99 of 104)
Fed's attempt at slowing the economy was working. If that is the case, additional hikes might not be necessary. The result: an early morning rally.
thewolfatlarge - 05:32pm May 26, 2000 EDT (#100 of 104)
The oil stocks are going to be very good, like OXY, and TX, and XOM, so enjoy!
voskrese2 - 05:55pm May 26, 2000 EDT (#101 of 104)
Alan Greenspan is a public nuisance but people are afraid of criticizing him; they fear being called anti-Semitic. See what political correctness has bought us!
lepinluee - 06:42pm May 26, 2000 EDT (#102 of 104)
IMO it has more to do with the bi-partisan office! Emperor's clothes sort of thing! His predessessor was suposedly more incompetent. Old economists do not die they just linger on as chairpersons forever! We still have to pay the price for having had a depression seventy years ago!
spanza1 - 10:21pm May 26, 2000 EDT (#103 of 104)
Alan Greenspan has done an awesome job. But he doesn't compare with Paul Volker. Volker had to clean up the 20% inflation and interest rates left by the Dems in the '70s. President Reagan finally provided him with the political cover required to accomplish this awesome task. (The next Fed chairman will have to deal with Prez Clown's record trade deficits and any monetary fallout from that. Not an easy task, folks.)
lepinluee - 08:53am May 27, 2000 EDT (#104 of 104)
Spanza could you explain what "awesome" things Greenie has done except to turn the stock market into his personal roller coaster ride, do you understand what he is mumbling about? Volker, wasnt he involved in the banking scandal of the late 80's,a real genius!"Gee I did not know they were all crooks." |
