At 12:40 PM 1/24/95, Eugene Coyle wrote: >I asked a question about Greenspan's motives re the CPI debate. >Maybe it doesn't matter unless you are in the bond market this >week. The experts are betting on the Fed raising interest rates soon. >But Mexico is a probelem. So my question is this: Did Greenspan float his >attack on the correctness of the CPI number at this time so that he >would have a credible defense for not raising interest rates? Yes. There's speculation in the markets that it was in part designed to prepare Wall Street for no rate hike at the 1/31-2/1 FOMC meeting, given Orange County & Mexico. US economic data since then have been pretty strong, so a rate hike now looks more likely. But if Congress punts on the Mex bailout, the FOMC may wait. > With regard to the latter: How many believe that raising >interest rates can choke off a "boom"? I don't. I believe that the >efficacy of monetary policy in the past (e. g. the 1950's-1960's) was >due to simply making borrowing impossible to obtain, regardless of >interest rates. Now the Fed really has limited power over total >availibility of funds. And though the economists' rationale for >monetary policy has always been borrowers deciding to not pay very high >rates, I believe it is because banks simply would'nt lend. After all, >during a "boom" (if we ever have one again) borrowers are wildly >optimistic and really willing to pay whatever the lenders ask. Yup. This is pretty exactly it. The price of credit matters much less than its availability, and the willingness of borrowers to use it. Doug -- Doug Henwood [[EMAIL PROTECTED]] Left Business Observer 250 W 85 St New York NY 10024-3217 USA 212-874-4020 voice 212-874-3137 fax
