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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (3461)	2/23/1999 3:25:00 PM
From: Investor2	Read Replies (3) \| Respond to of 15132

An interesting translation of Greenspeak from another thread: (1)"In light of all these risks, monetary policy must be ready to move quickly in either direction should we perceive imbalances and distortions developing that could undermine the economic expansion." Consider the above a carrot or a stick and watch out for volatility. (2)"Most Governors and Reserve Bank Presidents foresee that economic growth this year will slow to a 2-1/2 to 3 percent rate. Such growth would keep the unemployment rate about unchanged. The central tendency of the Governors' and Presidents' predictions of CPI inflation is 2 to 2-1/2 percent. This level represents a pickup from last year, when energy prices were falling, but it is in the vicinity of core CPI inflation over the last couple of years." Four to five percent growth real growth may be too high. We'll follow market rates up with a late hike if that's the case. (3)"Investors appear to have incorporated into current equity price levels both robust profit expectations and low compensation for risk. As the economy slows to a more sustainable pace as expected, profit forecasts could be pared back, which together with a greater sense of vulnerability in business prospects could damp appetites for equities. A downward correction to stock prices, and an associated increase in the cost of equity capital, could compound a slowdown in the growth of capital spending. In addition, a stock market decline would tend to restrain consumption spending through its effect on household net worth." Of course we are watchful and fearful of stock market activity. (4)"Among the temporary factors, the sizable declines in the prices of oil, other internationally traded commodities, and other imports contributed directly to holding down inflation last year, and also indirectly by reducing inflation expectations. But these prices are not likely to fall further, and they could begin to rise as some Asian economies revive and the effects of the net depreciation of the dollar since mid-summer are felt more strongly." We are also watching oil, metals, other commodities and the dollar. You should too. (5)"At the same time, however, recent experience does seem to suggest that the economy has become less inflation prone than in the past, so that the chances of an inflationary breakout arguably are, at least for now, less than they would have been under similar conditions in earlier cycles. Over the longer run, of course, the actions of the central bank determine the degree of overall liquidity and hence rate of inflation. It is up to us to validate the favorable inflation developments of recent years." We've been lucky double digit money growth hasn't burned our butts. (6)"This worker depletion constitutes a critical upside risk to the inflation outlook because it presumably cannot continue for very much longer without putting increasing pressure on labor markets and on costs." We'll look closely at Feb. hourly earnings released on Mar. 5. (7)"Specifically, the Committee again has set growth rate ranges over the four quarters of 1999 of 1 to 5 percent for M2, 2 to 6 percent for M3, and 3 to 7 percent for domestic nonfinancial debt." Gawd we almost doubled our growth targets for 1998. Wow. (8)"Last year, these monetary aggregates far overshot the upper bounds of their annual ranges. While nominal GDP growth did exceed the rate likely consistent with sustained price stability, the rapid growth of M2 and M3 also reflected outsized declines in their velocities, that is, the ratio of nominal GDP to money. M2 velocity dropped by about 3 percent, while M3 velocity plunged by 5-1/4 percent." Using the 'ol MV=PQ, it's a good thing people were walking around with lots of pocket cash ignoring foregone interest at these rate levels. (9)"For the coming year, the broad monetary aggregates could again run high relative to these ranges. To be sure, the decline in the velocities of the broader aggregates this year should abate to some extent, as money demand behavior returns more to normal, and growth in nominal GDP should slow as well, as suggested by the Governors' and Presidents' central tendency. Both factors would restrain broad money expansion relative to last year. Still, the growth of M2 and M3 could well remain outside their price-stability ranges this year. Obviously, considerable uncertainty continues to surround the prospective behavior of monetary velocities and growth rates." If money continues to grow and velocity increases we'll have to tighten to even come close to a 3% central tendency. (10)"The Federal Reserve will release such a statement when it wishes to communicate to the public a major shift in its views about the balance of risks or the likely direction of future policy. Such an announcement need not be made after every change in the tilt of the directive. Instead, this option would be reserved for situations in which the consensus of the Committee clearly had shifted significantly, though not by enough to change current policy, and in which the absence of an explanation risked misleading markets about the prospects for monetary policy." Don't worry, we'll give you ample warning before we raise rates. That could be as early as March 30 or as late as May 18th. April should be a good time to take equity gains, or March just to be sure. bog.frb.fed.us