Inside the Fed
The Fed did exactly what everybody thought it would on Thursday and the market rejoiced. But Alan Blinder, a former vice chairman of the Federal Reserve and now an influential economist with Princeton University, thinks that Wall Street's euphoric reaction was a bit overdone.
The two of us talked about the Fed over glasses of merlot during dinner at the Eisner's insanely large ranch Thursday night. (Tough life, eh?) Blinder said that he thought the market often makes the wrong call about the Fed at first. And he said that he read Thursday's statement and was not convinced that the Fed would pause just yet. He said that the Fed, by commenting on slowing economic activity, is clearly signaling that it may pause soon but that the market should never assume things with the Fed. Blinder joked that he always found it amusing to see how the market would react to interest rate announcements when he was at the Fed. He said he would often guess how the market would respond following the announcement and found that it was often difficult to accurately predict what the stock and currency markets would do. The bond market was usually easier to figure out. As for his former boss, Blinder said that Alan Greenspan pretty much spoke in private the same way he did in public. In other words, he was just as incomprehensible behind closed doors. Blinder thinks that it's a good thing that new Fed chair Ben Bernanke is more plain-spoken but that it will take a few months for Wall Street to get used to the fact that Bernanke, unlike the Maestro, doesn't speak in riddles. Every one know that the Fed was going to rasie rates to 5.25%. The market reacted, as it always does, just to have the rate hike behind it. The fed is still not done rasing rates. Bernanke will rasse rates atleast one more time.
Posted By : 11:46 AM | Add a Comment
Paul La-di-da ....the Fed is Up-Tight ...it's Don !
From what I red , I agree with what Al Blinder said in your meetings . Whether you speak as Al did or a Converted Fed-Reserve Employee...Uncle Ben , the market wants to see visability ! All is now too liquid for the market to feel comfortable ! The Fed has to start to mop-up this excesss liquidity and turn this market around so that rudder is steering the ship not the turbulence in the liquidity ! I give credit to the Feds they are waiting for the government to tighten-up up their operation ; from the bottom ( Congress ) to the bureaucratic agencies that oversee theall this government legislation ! This can easily be a tri-atholon event ! ....Gotta Love Our Birthday , Paul ! Happy Birthday U S of A ....Don ! Posted By : 5:23 PM | Add a Comment
The Fed has long suppressed the gold and silver price in order to cover up inflation. Money growth (= inflation) was enormous. Most commodities have risen sharply. A lot of goods sold in the US are imported from China and the yuan is to go up. The dollar is falling and commodity prices will go up further.It looks like the Fed finds itself in a very difficult situation.
Posted By : 5:05 AM | Add a Comment
We aren't used to a plain spoken fed statement and we are still in the mindset that the fed already knows what it will do at the next meeting.It's are no longer in the predetermined phase of raising rates over a period of time.
Posted By : 9:41 AM | Add a Comment
I believe inflation is much worse then the market or the Fed indicate it is. My reasoning is as follows. The labor rate index is the one most closely watched. They say if wages are in check no problem with inflation.
Here is my take on the fallacy of this. Yes, the labor rate is not inflating. The reason it is not, is because of a large amount of immigration into our country in the past 5-10 years of people who are willing to work the same jobs others were holding before their arrival for less. This is holding down labor rate inflation. However, the service area is a totally different situation. When have you last received a price decrease or even moderation in pricing from your plumber, barber, dentist, doctor,hospitals, prescriptions insurance premiums, phone company, cable company, internet access,news paper, utilities, auto repair, auto gas, auto prices,beverages,building materials. The list could go on and on. Most all of the above mentioned are essentials of life. I sure feel the accerlation of pricing in all that I mentioned. I would be interested in someone providing me with a counter list of items that are essential in our daily lives that disputes my claim. They say we are no longer a manufacturing economy, but a service economy. The service providers to our economy are increasing prices at rates that are very inflationary. The real problem has begun as people receiving lower wages (moderate inflation) are feeling the effects of higher prices (bad inflation) in the essentials they need from the service economy. The service economy has gotten by with annual increases above and beyond what is fair for some time now. I personally think the Fed will have to continue to increase short term rates to perhaps 7% or more before the inflation beast in our service economy is put back in the bottle. It is going to take a total and complete shaking out of the excesses before we can move forward in a better economic enviornment. Common sense out here in the thick of things tells us so. Posted By : 1:28 PM | Add a Comment
A pause in interest rate increases will hurt the dollar, and effectively increase relative prices of imports and increase inflation.
Posted By : 6:42 PM | Add a Comment
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