To: patron_anejo_por_favor who wrote (141539 ) 1/3/2002 8:31:16 PM From: ild Read Replies (3) | Respond to Patron, do you think that Greenspan does want much higher stock market? He is in the box and he's doing the right thing - fighting deflation with all means possible. What would you do today if you were in his shoes? I'm not talking of what he should not have done years ago. I'm talking about todays situation.All this speaks volumes of a US economy that could continue to frustrate the Federal Reserve in its noble mission to achieve policy traction. I have long suspected that the US central bank has a "stop point" on a 2% nominal federal funds rate. There’s nothing magical about that level -- especially since it may end up being surprisingly high in real terms. But when official rates enter the twilight zone of having a "one-handle," the fears of a Japanese style conundrum suddenly become very real. The last 200 bp of monetary easing is a very precious commodity -- one that no central bank would wish to spend, unless the circumstances were so dire it had no other choice. For the reasons enumerated above, that’s precisely the outcome I now fear. The best the Fed can do, in my opinion, would be to surprise the markets with a more creative and aggressive easing -- something it has been either unwilling or unable to do this year. And it should accompany such an action with an explicit signal that it intends to maintain an exceedingly low level of official rates for an indefinite period of time. Quite frankly, I’m not even certain that would help, but I sure think it beats the current incremental approach. morganstanley.com
