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To: Defrocked who wrote (1004)	2/24/1998 4:09:00 PM
From: Cynic 2005	Read Replies (1) \| Respond to of 86076

Oh wise one, as you said, they may cry and cry for lowering the rates. doesn't look like Greeny is gonna giveth. -g- ----------------------- Tuesday February 24, 2:55 pm Eastern Time Greenspan said dumping cold water on easing camp By Isabelle Clary NEW YORK, Feb 24 (Reuters) - Federal Reserve Chairman Alan Greenspan's renewed emphasis on ''real'' or inflation-adjusted short-term U.S. interest rates poured icy cold water on Tuesday on the market camp that had been looking for easier U.S. credit ahead, according to Fed experts. ''People in the market might have been thinking about a Fed easing, but these thoughts have been shattered with Greenspan's testimomy today,'' said Daiwa Securities America chief economist Michael Moran who called the reference to real interest rates ''the most interesting segment of Greenspan's testimony.'' The benchmark 30-year bond lost about 3/4 point on Greenspan's semi-annual Humphrey-Hawkins testimony while its yield shot up to 5.96 percent from 5.91 percent on Monday. Greenspan reminded Congress, to whom the Fed answers about the country's price and employment performances, that ''monetary policy has been at its most effective when ... preemptive.'' The Fed chairman stressed the U.S. central bank maintained that approach last year with the ''firming in the stance of monetary policy by one important measure -- the real federal funds rate or the nominal funds rate less a proxy for inflation expectations.'' -- POSSIBLE LOST DATA -- \000 While U.S. policymakers remained concerned in 1997 about the inflationary potential of a rapid expansion and full employment, they hiked the federal funds rate just once and by a modest 25 basis points to 5.50 percent. But at the same time, the Consumer Price Index (CPI) inched up by a small 1.7 percent last year versus 3.3 percent in 1996 -- meaning the ''real'' funds rate soared from about 195 basis points at the onset of 1997 to 380 basis points by late 1997. The lack of a nominal funds rate ratcheting led some market players to speculate the Fed was in a lenient mode and would ease next due to the impact of the Asian crisis. Greenspan dispelled thoughts of a less vigilant Fed, noting that some analysts understood the 1997 policy stance was a ''passive tightening (that) increased the amount of monetary policy restraint without an explicit vote by the Federal Open Market Committee (FOMC).'' Daiwa's Moran said such remarks showed Greenspan ''welcomed the 'passive tightening' of last year and, while ''non-committal on the next policy move, hinted there is no easing in sight.'' ''Even though the real funds rate has increased, it has not increased to the degree where interest-sensitive sectors of the economy are constrained this time,'' Moran stressed. Greenspan spelled out the equation the Fed faces in 1998, with the jury still out on the opposite forces at play -- the Asian crisis on one side and the inflationary pressures that historically result from high demand on the other. The outcome of that tug-of-war will determine whether the real funds rate remains restrictive or not, analysts said. Nomura Securities International managing director David Resler had described the Fed as having entered an era of ''preemptive inaction'' as early as February 1996 when the nominal funds rate was set at 5.25 percent and stayed there for more than one year. Resler, a former Fed economist, coined the ''preemptive inaction'' expression on the view that the stern tightening cycle of 1994 had fully offset the inflationary potential of the stimulative policy in place the prior year. Resler's analysis tied the good inflation performance over the past two years to the preemptive tightening cycle of 1994, considering the fact monetary policy affects inflation with long lags. The Fed's inaction, according to Resler, is the mark of a successful policy where the U.S. central bank can afford to watch on the sidelines for eventual imbalance and let an efficient free-market U.S. economy run its own course. The notion of ''real'' rates is crucial at the Fed where it has been regularly cited at turning points in policy in recent years. One key uncertainty for the Fed is the performance of long-term interest rates that the central bank cannot control and that have been very low in recent months.