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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (2677)	3/17/1998 10:25:00 AM
From: Michael	Read Replies (1) \| Respond to of 9980

Some interesting Articles on the Asian Crisis and General Economic Outlook. aei.org aei.org Michael

To: Stitch who wrote (2677)	3/19/1998 9:28:00 PM
From: Kurthend	Read Replies (2) \| Respond to of 9980

Stich, Just found this concerning possible interest rate hikes in the second half of the year. The article mentions that the asia crisis isn't the big bear that it was suppose to be. You live in Asia. What is you take on this statement? Thursday March 19, 8:49 pm Eastern Time U.S. labor market seen worrying Fed -- again By Knut Engelmann WASHINGTON, March 19 (Reuters) - Make no mistake: the tight U.S. labor market is a prime threat to the health of the nation's economy, which is entering the eighth year of an expansion with undiminished strength. This is the message the Federal Reserve is sending to investors who may have, instead, looked for Asian financial woes to lead U.S. policy makers to tighten monetary policy, and thus calm the booming economy and return it to a more sustainable rate of growth. However, the renewed focus on domestic inflation risks and mounting evidence that the economy has lost none of its buoyancy in the first quarter of the year has analysts again wondering whether interest rates will go up sooner rather than later. ''Southeast Asia is not turning out to be the big bear that it was supposed to be,'' Lyle Gramley, a former member of the Fed board of governors, said. ''Whatever negative is coming from there is being swamped by a very, very strong domestic economy.'' Sure, Asia's crisis is hurting U.S. firms. Falling exports to the region helped boost the trade deficit to $12.04 billion in January, a level not seen since the late 1980s. But as far as domestic conditions are concerned, recent reports paint a picture of an economy just roaring ahead -- consumer spending, employment and production all are on a strong growth trend. In a clear sign that the central bank has lost none of its zeal when it comes to the risk of overheating, the Fed warned this week in its latest survey of economic conditions that the nation's labor markets were ''stretched to the limit.'' In its so-called Beige Book, the basis for discussions at the Fed's next interest rate strategy meeting on March 31, the central bank reported that many U.S. firms were desperate to find workers, forcing them to offer ''rather large wage increases.'' Wage pressures are widely regarded as the prime cause for higher inflation, the Fed's natural nemesis. Analysts said the unusually blunt report was aimed at reminding financial markets of the dangers of rising inflation. ''Those were some pretty inflammatory comments,'' said Joel Naroff, Philadelphia-based economist at First Union Corp [NYSE:FTU - news]. Low interest rates and the unusually mild winter weather have fueled a nationwide construction boom. Builders across the country complain they cannot find enough workers to fill the flood of incoming orders. ''When we ask builders what's their most serious problem -- it's the shortage of labor,'' David Seiders, chief economist at the National Association of Homebuilders, said. ''It's the big one. We see it in all parts of the country.'' Consumer prices are held in check by cheaper energy prices, but without the typically volatile food and energy components the widely watched consumer price index in February showed its biggest gain in 10 months, the government said Thursday. Retail sales are rising solidly as consumers remain as confident about their economic future as ever before. Not surprisingly, most economists are predicting economic growth in the first three months of the year will come in above the level that most would consider sustainable in the long run. ''There's a real good chance that we'll have first-quarter growth of 3 to 3.5 percent,'' Naroff said. ''Even if Asia were to cut 1 percent off that growth rate, that doesn't cut a whole lot of slack in the economy.'' Fed Governor Roger Ferguson told a banking conference in Columbus, Ohio, Thursday he saw Asia's woes shaving 0.75 of a percentage point off economic growth this year. So far, most analysts rule out a rate increase at the next Fed meeting later this month. The key overnight federal funds rate has been steady at 5.5 percent for about a year, and few see it going higher in the first half of 1998. After that, a growing number of economists say all bets are off. Higher rates would slow the economy by raising the cost of borrowing money, putting a lid on investment and spending. ''If there's any move, it's going to be a tightening,'' Gramley said. First Union's Naroff is also putting his money on a rate rise in the second half of the year. The writing is already on the wall, he said: ''The Fed is clearly saying 'We're yelling at the top of our lungs -- don't forget about the domestic economy and the implications that tight labor markets could have as we move forward.'''