Wayne Angell,Chief Economist,Bear Stearns,& ex-Fed Gov.on interest rates.
Sig and everyone:
In case you missed NBR last night.
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Source: NBR
Analysis Of The Interest Rate Scenario
PAUL KANGAS: With me now to discuss the interest rate scenario as it unfolded today is Wayne Angell, chief economist for Bear Stearns. And, welcome to NIGHTLY BUSINESS REPORT, Wayne.
WAYNE ANGELL, CHIEF ECONOMIST, BEAR STEARNS: Thank you, Paul.
KANGAS: In your experience as a Federal Reserve Board governor, was it common practice by the board to influence interest rates by proxy. That is, through the financial press, as apparently was the case with the Wall Street Journal's report today that a rate boost is more likely than an easing?
ANGELL: Paul, it was not at all common. It was only on rare occasions that the chairman's office, I always presumed, decided to make this kind of announcement without attribution.
KANGAS: I guess we call that, a leak.
ANGELL: Yes.
KANGAS: Oh, OK.
ANGELL: Yes, I always thought if the chairman did not do that, I always thought it would be easier to get other people not to do it.
KANGAS: Wayne, if you were still sitting on the Federal Reserve Board, would you be voting for a rate boost of some sort, a 1/4 or 1/2 point, on May 19?
ANGELL: I would be advising against raising rates at the May meeting. And I would advise it because inflation rates, which do lag monetary policy, continues to move down. And it seems to me, there is no reason for the Federal Reserve to get in a hurry with low commodity prices, low price of gold, and a very strong dollar.
KANGAS: Yes, but how about the inflation in equity prices?
ANGELL: Well, Paul, that is one that is a very difficult thing to deal with. My view would be that certainly, when you have an increase in equity values, as we have. People do feel wealthier. And, unfortunately, it subtracts from the saving rate in the United States. And, consequently, as we go forward, I do not see anything wrong if the economy continues as it is. I do not see anything wrong with a 5 3/4 or 6 percent funds rate. I just would not prefer doing it at the May meeting.
KANGAS: Well, would you think that the "buy on the dip" crowd is going to win again, after this downturn that we have seen?
ANGELL: Well, I do not know whether this downturn is finished or not. But, by in large, the Federal Reserve did not do anything. And, in fact, I think it is very clear that, according to this leak, it is very clear that they do not expect to do anything at the May meeting.
KANGAS: Well, the speculation also is, Wayne, that the Federal Reserve Board believes the Asian turmoil will, really, undermine our economy to the point that inflation will not, at all, be a threat. But, you think the worst of the Asian effect is still, yet, to come?
ANGELL: I never believed that there would be really an unparalleled worsening of the U.S. economy, based upon Asia. I always thought that Asia would provide us with some offsetting stimulus in regard to lower interest rates and lower import prices. Which certainly, lowers the rate of inflation.
KANGAS: All right. Now, the bond market had a terrible day and did not really recover, like the stock market did. Do you feel this is a good time to grab some, buy some bonds?
ANGELL: Well, it seems to me that it is not a bad time to, on the short run, to buy bonds. But I do think that we have an uncertain future here until Federal Reserve policy is ironed out. Until we see the economic data coming. Then, I think it becomes clearer as to what the Federal Reserve will do, be doing the last half of the year. I would caution bond buyers ...
KANGAS: OK.
ANGELL: ... that I expect that the next move, is certainly an increase. Not a decrease.
KANGAS: All right. So, in any case, you are still bullish on the stock market. Yes or no?
ANGELL: I still like the stock market. I do not like it quite as well ...
KANGAS: OK.
ANGELL: ... as I would if I could buy things with a little more reasonable P/E.
KANGAS: We all feel that way. Wayne, thanks so much for being with us.
ANGELL: You're welcome.
KANGAS: My guest, Wayne Angell, chief economist for Bear Stearns.
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