FOMC: rate same, bias towards ease

Doug Henwood dhenwood at panix.com
Tue Aug 13 14:57:38 PDT 2002


Nomiprins at aol.com wrote:


>It would have been spinned to link to the stock market (since
>Greenspan characterized the economy as 'resilient' just last month)
>evoking remarks from Bush & co. about the positive combined impact
>of harsher corporate fraud penalties (a useless afterthought) and
>supportive monetary policy. But, the erosion in stock market value
>over the past two years, and more spectacularly over the past couple
>months, was due to the discovery that all the balance sheet
>inflation, growth in R&D and technology, and over-expansion was
>built on quicksand. The 11 rate cuts over the past year didn't boost
>the market or the economy, because they couldn't change that basic
>fact. Cutting in mid August when markets are even more volatile
>because of the sheer lack of participants - while we're already at
>1.75% uses up a bullet. A cut would have boosted the markets for a
>day, two max b! efore they crashed even lower. It would have been
>construed as positive for a few minutes, before the realization set
>in that there's no room to go much lower. That said, I believe
>Greenspan will cut rates after another round of economic data and
>AFTER the FOMC meeting on 9/24 (as has been his controlling custom -
>he never cuts when everyone's looking.)

It wouldn't surprise me if they're setting us up for a surprise - just when people give up on a rate cut, they spring on on us. Maybe before the meeting, if the August employment report is ugly.

Doug



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