December 17, 2005


A friend at the Fed? (Larry Kudlow, Dec 17, 2005, Townhall)

I still can't forgive the central bank for decimating and deflating the bullish stock market economy five years ago, a move that temporarily ended the great productivity surge of the Internet revolution. But perhaps they have learned a thing or two, and perhaps the arrival of the brilliant Ben Bernanke as Fed chair will be an occasion for real change.

In shorthand, the Fed's policy statement last week strongly suggested that the recent 18-month tightening cycle soon will come to an end. It raised its target rate from 4 percent to 4.25 percent, and perhaps there's another small move or two left. But bond-market indicators have for quite some time been signaling an absence of inflationary pressures -- a matter confirmed by the actual data, where the basic inflation rate continues under 2 percent.

Not only has the 10-year Treasury bond been hovering at a half-century low of 4.5 percent for many years, but the difference between this cash bond and its inflation-indexed cousin suggests that low inflation is here to stay for another decade.

There's no excuse for real interest rates as high as they are in globalized economy with demographics trending towards the aged.

Posted by Orrin Judd at December 17, 2005 9:12 AM
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