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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: ShoppinTheNet who wrote (24)	5/3/1998 8:33:00 AM
From: Henry Volquardsen	Respond to of 3536

Mornin' Mr 2, The money supply was important in the early 80s because Volcker was using it as a primary policy indicator. He made it clear that his number one goal was fighting inflation and that excessive monetary growth was a major inflation cause. He also made it clear he would raise interest rates in order to slow money growth. So the market knew there would be a response to the money supply numbers. Over the last 10 to 15 years there has been a lot questions regarding change of money velocity relationships because of structural changes in the markets such as the growth of money market mutual accounts. There has also been a lot of deflationary pressure in the markets from technological advances, streamlining of US businesses and the opening of much of the developing world to free market capitalism. As a result it is not easy to track a direct cause/effect relationship between money supply and inflation. So the Fed is currently more focused on potential tightness in the labor markets and a wage impact on inflation. That is why numbers like ECI are now more of a policy indicator. Henry