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To: Erik T who wrote (126)	10/24/2000 2:44:09 AM
From: Erik T	Respond to of 74559

My concern regarding Greenspan and inflation is he seems to have been changing the inflation rules over the last several years. An article from the Oct 7 The Economist states: "Curiously, despite the popular view that America's inflation remains subdued, its consumer prices are actually rising faster than in the euro area-up by 3.4% in the year to August. Indeed, the core rate of inflation, excluding food and energy, was 2.6% in August, up from 1.9% at the end of 1999. Over the same period, core inflation in the euro area edged up more modestly, from 1.1% to 1.3%. So how can Alan Greenspan, the Fed chairman, sleep soundly at night? One reason is that he sees the CPI as badly flawed. He prefers the personal consumption expenditure (PCE) deflator, which just happens to be rising more slowly. "Could this be a nasty case of 'inflation trim': changing to a friendlier measure of inflation when the previous one starts to flash red? CPI inflation has been trimmed in recent years through statistical adjustments recommended by the Boskin commission in 1996. On the old basis American inflation would now be almost 4%, the higheest since 1991. But not content with this improved yardstick, until recently the Fed was increasingly stressing in its comments the superiority of the core CPI inflation, which, unlike the headline rate, fell during 1999. This year, as core inflation has risen, it turned to the PCE deflator-which helpfully suggests that core inflation has risen only slightly, to a mere 1.8%." Interesting idea, everytime inflation starts building in one measure, change the measure. Soon we may have reports of inflation ex-inflation. Then we won't have any more inflation. To give the benefit of the doubt to Greenspan, perhaps he is finding measures that really are more representative of reality, and if that is the case then power to him. My concern is that Greenspan may try and keep growth strong despite accelerating inflation, and justify his moves by pointing to whichever index provides the best support of low inflation. What the Fed does with interest rates will have profound implications for investment decisions despite all the danger signs currently abounding. My question: if we enter a period of looming recession with rising inflation, is the Fed likely to raise or lower rates? I have seen reasonable arguments for either. My thoughts, Erik

To: Erik T who wrote (126)	10/24/2000 3:02:16 AM
From: Stcgg	Read Replies (1) \| Respond to of 74559

Erik - My Thoughts on the Fed/Inflation.. Magoo's hands are tied with the rising price of oil and expected 40+ barrel this winter.. If he lowered rates, we would have hyper-inflation and this would be viewed as fiscally irresponsible of a Fed chief.. >><<