July 20, 2004
NO, HE IS GOD, HE JUST THINKS HE'S VON KARAJAN:
Greenspan Gets It Right: The Fed chairman made the right move with the last small interest rate hike. (Irwin M. Stelzer, 07/20/2004, Weekly Standard)
GAME, point, and possibly even match to Fed chairman Alan Greenspan. When he and his monetary policy committee raised interest rates by only 0.25 percent a few weeks ago, the inflation hawks were out in force. The economy, they said, was overheating, and the Fed chairman, wedded to the view that rising productivity would keep costs and prices under control, was refusing to take the vigorous action necessary to head off an impending inflationary surge. Rates should have been raised sooner and faster, they argued.In the event, it turns out that Greenspan had it right. Late last week the government reported the largest drop in wholesale prices in a year, with energy and food leading the declines with declines of 1.6 percent and 0.6 percent, respectively. Excluding those volatile elements, "core" wholesale prices rose only a modest 0.2 percent in June. Consumer prices also showed no signs of the inflation that so worries the hawks: core inflation rose a tiny 0.1 percent.
As long as he has sense enough to quit raising after that perfunctory hike showed he's paying attention. Posted by Orrin Judd at July 20, 2004 2:05 PM
Yesterday Greenspan told Congress that he is ready to raise rates even faster than the measured pace he has laid out if inflation starts to take hold. Companies are seeing inflation in their production inputs, but Greenspan says that companies will not pass those costs on to consumers, but will eat them. The sudden talk about the possibility of higher rates spooked the market, and bonds sold off. Inflation is a bigger threat than is being admitted to. Greenspan is admitting that higher costs will eat into corporate profits. Lower profits means slower growth, slower hiring, less consumption. Sounds like stagflation to me.
Posted by: Robert Duquette at July 22, 2004 10:32 AMLower profits are an inevitable function of comnpanies inability to raise prices in a deflationary cycle.
Posted by: oj at July 22, 2004 10:41 AMWhy is Greenspan spooking the market with inflation talk if we are in a deflationary environment? Financial assets will be deflating, but real stuff, like oil and metals and food, will be getting more expensive.
Another interesting fact (from Business Week). Corporations are sitting on billions of cash. Why would they do that? Why is Microsoft paying billions in dividends instead of investing in new products and markets? Because, as Warren Buffett has said, there are very few businesses worth investing in right now. With all of the billions of dollars of foreign investment coming into the US, less and less is going into direct investment (plants, capital goods, etc), most is going into the financial markets. These aren't signs of an economy ready to blast off.
Posted by: Robert Duquette at July 22, 2004 4:47 PMThe chatterers are worried about inflation so he showed them he's listening by doing the least he possibly could.
Posted by: oj at July 22, 2004 6:13 PM