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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Mike M2 who wrote (204454)	11/13/2002 12:57:18 PM
From: Les H	Respond to of 436258

thought CNBC said Greenspan testified that the Fed would buy the 30-yr bonds. it doesn't seem to be working today. Fed Meeting Minutes Reveal Concern About Low Inflation By GREG IP Staff Reporter of THE WALL STREET JOURNAL "Indeed, the [committee] members did not rule out the emergence of appreciably lower inflation," the minutes, released Thursday, said. "Some observed that a significant decline in inflation from current levels could imply an unwelcome" rise in real interest rates. The real interest rate is arrived at by subtracting the inflation rate from the nominal interest rate. Thus, even if the nominal interest rate is unchanged, a drop in inflation would increase the real rate. Real interest rates gauge the tightness of credit conditions better than unadjusted rates. (emphasis added) "For the Fed, inflation close to zero, like deflation, would "create problems for the implementation of monetary policy ... in the event of an adverse shock to the economy that called for negative real ... interest rates," according to the minutes. That's because with inflation at zero, real interest rates can't go below zero. By contrast, with a 2% inflation rate, a 1% interest rate is negative 1% in real terms. Another problem with zero inflation is that it wouldn't take much of a negative shock to tip the economy into deflation." (end excerpt)