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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: egggmann who wrote (31465)	5/16/2000 1:25:00 PM
From: IQBAL LATIF	Respond to of 50167

bog.frb.fed.us <<Capacity utilization appears to follow along with the Fed Funds Target rate (FDTR) instead of the opposite as you proposed. Looking at the recent period of '85 to present, we see the Fed increasing rates in three periods. From early '87 to early '89 the FDTR went from 5.875 to 9.75. During the same period the capacity utl went from 79.7% to 85.3%. Then the same thing occurred on the downside. The FDTR went down over a long series of eases to bottom out at 3% in '92 and Cap utl followed along down to a low of 78.1% in 1Q91 before leading back up to a high in '94 when as we're all familiar the Fed raised rates again.>> 1987-89 FDTR went from 5.875% to 9.75% now my premises is : "whenever we have seen spate of interest rate hikes we see a fall in capacity utilisation " 1989-1991 capacity utilisation dropped from 85.3% to 78.1%. Now I don't know how else I should have put it, the chart clearly indicates that.. may be a word 'consequent' before 'fall' should have sufficed? 1994 as Fed went on another spree of hikes due to overheating concerns as cap utilisation increased we saw that consequent result was that in 1996 and 1997 we saw cap utilisation dropping from 84.8% to 81%.. We are now at 82 and the trend is rising but the PPI and CPI are not showing serious inflationary pressures alongwith that producers would not be able to increase prices as industrial capacity growth has been far higher than any time in recent economic cycles, if these spate of interest rates as I am sure would lead to fall in capacity utilisation that heading down will bring far steeper correction, for any economist ideal nirvana is non-inflationary growth, we are seeing one and what I hope is that these rises may not turn the tide as due to recent leaps in capacity growth the 'idle capacity' would hit corporate profits hard.. I hope you may get the drift of my post, sorry for any inconvinience caused..