« Meltzer to Fed: "Don't be afraid to disappoint the market." | Main | The TimesSelect experiment ends »
September 17, 2007
We're not used to such clarity from him
Former Fed Chairman Alan Greenspan has left the obfuscations of Fedspeak behind him. Now he comes right out and tells it like it is. Mr. Bernanke can't be too happy about this one:
WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan said in an interview published on Monday the Fed would have to raise interest rates to double-digit levels in coming years to thwart inflation.
Yikes!
Well, anything is possible, but this one isn't too likely in my book in the near future. But then again, Greenspan is probably looking out future ahead than the next easing and tightening schedule--ahead to a time when China may be looking at runaway money growth and exporting inflation to the rest of the world. Impossible, you say? Well... (Wall St. Journal)
BEIJING -- China raised benchmark interest rates late Friday as it stepped up efforts to damp accelerating inflation, and analysts predicted the central bank's fifth rate increase this year won't be its last.
Fueling the need to raise rates is an economy that expanded 11.9% in the second quarter and shows no signs of slowing. Data released last week showed continued strong growth in money supply and investment spending.
How do you look at that situation and not get concerned? We talk about soft landings. They're riding a rocket. How do you pull off a soft landing that way?
Anyway, today is the calm before the storm. I'll be busy, so posting will be light unless something exciting happens today. Besides, if you've been reading the blog for a while you know what I'm thinking. It's not how I would have wanted to see things go, but I think a 25 b.p. cut is the most likely outcome. Ultimately, the inflation cost of one 25 b.p. cut is probably not that large right now. An honest case can be made that a cut will soften the blow should things turn downward this fall. However, 50 b.p. would be a mistake, IMHO. That does not mean that it can't happen.
I will not be posting until late on Tuesday, but I will have something whatever the result.
Posted by William Polley at September 17, 2007 1:19 AM
Trackback Pings
TrackBack URL for this entry:
http://www.williampolley.com/cgi-bin/mt-tb.cgi/845
Comments
Well, Volcker raised rates to double digits.
I was hoping when Ben Bernanke became Fed chair that he was going to be the kind of Fed chair we needed before things got so bad that we needed Paul Volcker. Now I'm not so sure.
Posted by: Max at September 17, 2007 1:56 AM