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To: michael97123 who wrote (47428)	1/29/2001 10:10:50 AM
From: GVTucker	Read Replies (1) \| Respond to of 77400

michael, RE: You obviously dont have a sense of history when it comes to what happens when the the economy is falling. I am not saying inflation is a good thing but we are not talking about the runaway variety here. First of all, I would disagree rather strongly with your first sentence. The only time that I can think of when an overly restrictive monetary policy facilitated a downturn was the depression of the 30's. And then, so many things were different that it is hardly comparable to the current economic situation, particularly with free floating currencies. Secondly, while it is readily apparent that the Fed was too tight then, it is hard to blame the Fed of that time without the benefit of hindsight. The memory of what can happen with a monetary policy that is too loose was very obvious in the Fed's mind with the German economic situation. The consequences of a loose monetary policy were very obvious. The consequences of an overly restrictive monetary policy were only theoretical at the time. And, in regards to the second sentence of yours, core inflation hit an inflection low in January of '99. This isn't even considering the sharp run up in the price of energy. Rising core inflation is a problem right now, albeit only a small problem. An overly loose monetary policy runs the risk of accelerating this problem. In addition, the real interest rate isn't as high right now as it was in '97 or most of '98, given the current rising rate of inflation.