In praise of the Fed's idleness

Article Abstract:

US interest rates are likely to remain unchanged in Dec 1999, but could be raised in 2000, with a 6% funds rate likely for mid 2000. One reason for delaying a rate rise is that it could have more of an impact on markets in Dec, when they tend to be illiquid. Interest rates have not been raised in Dec during the 11 years of the chairmanship of Alan Greenspan, and inflation expectations could be raised if rates were raised in Dec 1999, since it could be perceived as an emergency move. US inflationary pressures appear low, and stock prices could drop, cutting spending by reducing personal wealth.

United States economic conditions

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Wall Street: cutting question

Article Abstract:

The Federal Open Markets Committee will meet in Dec 1995 to assess possible changes in interest rates. Analysts' views vary, with Salomon Brothers' John Lipsky arguing for a rate cut, and Morgan Stanley's Stephen Roach arguing for caution. Lipsky argues that interest rates are above average in real terms, while Roach argues that this is the reason for low inflation, and rate cuts could affect credibility in keeping inflation low. Roach gives more weight to possible inflationary pressures than does Lipsky.

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Fed shock

Article Abstract:

US interest rates could undergo a strong rise in 1997, argues Morgan Stanley's Stephen Roach. Such a rise could lead to a sharp drop in US bond prices. Previous asset price bubbles have been dealt with by rises in interest rates, and this could occur in 1997. US economic activity may increase by more than expected in 1997, driven by consumption. Real incomes are rising after tax, and household wealth has increased due to rises in share prices.

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