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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (2995)	2/11/2001 9:53:42 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 3536

You got to remember that his main concern right now is not the actual volume of GDP, but preventing loss of consumer confidence that would impact GDP much further than necessary to absorb excess inventories. Yes, the one thing that could turn this slowdown into a really nasty recession is the consumer pulling back. The present, and coming, investment slowdown - both inventory and plant and equipment - may not be enough to actually slow the economy to recession levels. A "breach in the fabric of consumer confidence" as Greenspan puts it would worsen matters significantly and exacerbate the above investment cycles. However, I wonder how much interest rates and the action of the Fed really play in the psychology of the average consumer. I think more important is the constant barrage of layoff announcements that we are getting. Throw in significant increases in power, natural gas and gasoline and the consumer may be teetering on the brink of a spending pullback. And so, while I think there are risks of the Fed getting into a "pushing on a string" situation, I don't think that will happen at these levels. Historically, a "neutral" rate level has been right around the level of inflation. We are far above that at present. The "keeping dry powder" argument has merits, but I don't think the Fed can use it at these high levels of real rates. When we get nearer to neutral, then I think that it becomes more of an issue.