Abstracts » Business, international

Goldilocks, pursued by a bear

Article Abstract:

US stock prices dropped on Jan 4 2000, with technology stocks more affected than the Dow. Hi tech and telecoms stocks had prevented US stock prices from falling in 1999, and these stocks have also performed well in Europe and Japan. Concern about interest rate rises could have led to the fall, and markets appear to be prepared for a rise in US rates which some see as a way of allowing the bull market to continue. There may be fewer constraints on the Federal Reserve to keep rates low, following the reappointment of chairman, Alan Greenspan.

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Bubble trouble

Article Abstract:

The issue of whether central banks should seek to deflate asset-price bubbles is not one that Federal Reserve chairman, Alan Greenspan, has a clear cut answer to. Real estate and stock prices have an impact on the economy as a whole, and there is concern that a bubble could be developing, but uncertainties about whether this is the case mean that there is reluctance to seek to deflate such a bubble. The Federal Reserve would lower interest rates if stock prices fell sharply, and this could lead to problems relating to moral hazard, despite the argument that only sharp movements in stock prices are responded to.

Banking Institutions, Depository Credit Intermediation, DEPOSITORY INSTITUTIONS, Banks (Finance), Economic policy, Central banks, United States. Federal Reserve Board

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Hurdle rates

Article Abstract:

Stock prices are expensive by a number of measures, and this means that they are sensitive to the possibility of interest rate rises and reports of inflation. Some stocks have performed well, but on average there has been little progress since April 1998. Profit growth is strong in 1999, but 1998 was a difficult year, so comparisons with 1998 gove an optimistic picture. Foreigners have helped to fund US stock price rises, and this could change and the US dollar is already dropping in value.

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