On the web since 1997
|
On the web since 1997 |
|
Just As ExpectedLuke Hodgens / Powerhouse Profits -- The “Alan Greenspan Show” began May sweeps with a re-run. The announcement by the Fed surprised nobody. Even Stevie Wonder could see this one coming. “The stance of monetary policy remains accommodative.” “With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured.”The reiteration of the “measured pace” language leads the market to believe inflationary pressures, although gaining a bit of momentum, should be well under control. The committee decided to raise benchmark rates by 25 basis points to 3%, the eighth consecutive such hike. As recently as the first week of March, speculation of a 50 basis point hike was being circulated around analysts’ circles. With stocks at three and a half year highs, GDP expected to read 3.5% and jobs growth robust, many analysts figured it was about time to reel in inflationary pressures (weak dollar, high oil) by increasing borrowing costs. It was assumed the economy was well on its way to 4% overnight rates, and such low rates (at the time 2.75%) were no longer necessary. No sooner did this assumption find its way around offices, stocks began sliding and GDP numbers missed expectations. All of the sudden, talk of “no change” in rates began flying around. This, I presume, is why the Fed does not hire average Joe Analyst to steer the economy. Mr. Greenspan did, as was best for the economy, stay on the trail. “Pressures on inflation have picked up in recent months and pricing power is more evident.” However, “recent data suggest the solid pace of spending growth has slowed somewhat, partly in response to earlier increases in energy prices.” Taking the Fed-speak and running it through my handy-dandy translator, I see that the Fed believes the economy is not suffering significant inflationary pressures outside of energy (all other price increases are due to this) and the suspicion of lower energy prices is mounting (as is evidenced in today’s crude oil market where crude settled down $1.42 at $49.50) All in all, we’ve seen this same speech before. Looking through Greenspan’s spectacles show us that the economy is growing nicely, inflation is not yet a major problem, but the current rate of growth should not be hindered by overly increasing borrowing costs, even to ward off possible inflation. From his words (my speculation on his language) energy prices will come under control and pricing pressures will mellow. The train is moving forward and gaining steam. Luke Hodgens is the editor of |
|
