What are Greenspan's intentions regarding interest rates?

[Jamison]

I'm wondering what everyone here thinks.

It almost seems as if he has wet dreams looking back at the 16-17% rates of 1981-82, and wants that again.

High rates like that are good for people investing in CD's, etc., but not much good for anything else.

I'm not much of an economist, but he has said that rates need to go higher to stave off inflation. Is this true in this situation?

[DemocratSinceBirth]

1. I Doubt Greenspan Has 16-17% Interest Rates In Mind..

Paul Volcker let rates get that high in the early eighties to wring inflation out of the system by choking economic growth...

[yourout]

2. I dont think rates will change much for the next 6 months or so.

A rate hike now with consumer spending starting to slide would be a horrible idea.

[unblock]

3. 16%? no way

he wants interest rates high enough to stave off any whiff of inflation but no higher.

prior to greenspan, the fed tried to stike a balance between preventing inflation and preventing recession. greenspan turned it into a vehicle whose primary mission was to fight inflation and fighting recession was a secondary (but not completely irrelevant) concern.

16% interest rates would crush the economy and even greenspan knows that.

remember that greenspan has cut rates in the past. he's not insane, he's just overly focused on inflation. then, of course, he's also willing to get involved in politics when the opportunity presents itself, as in his lobbying for the tax cuts.

bottom line, i'm seeing no more than four 25 point hikes from here on out.

[DemocratSinceBirth]

4. If We Are Going To Have A Fed We Could Do Worse Than Greenspan

eom

[mouyard]

5. STOCK MARKET WATCH

Check out the daily STOCK MARKET WATCH in LBN for news and info on the Fed and interest rates.

Quick answer: Fed drastically cut rates in 2001 to limit the recession, which in turn fueled the housing and credit bubbles we have today.

[unblock]

6. he has been good at what he has been attempting to do

i just wish he had been attempting to strike a better balance between inflation-fighting and recession-fighting.

[ProfessorGAC]

9. Don't Know About That

I think he's grossly overcontrolled that aspect of monetary policy. There is little evidence in the data that the primary cause of controlled inflation is the changes in interest rates, either up or down. There is probably, based upon theory alone, a stabilizing effect on a smoothed out, or moving average, basis. I'll admit that.

But, i think it's clear that there are times when interest raises or reductions were done without sufficient statistical merit that resulted in more overall variability of pricing and shifts in monetary velocity than would have happened otherwise.

Greenspan is a two dimensional thinker who believes the economy, in all its diversity, actually works on "X therefore Y" dynamics. It doesn't. Hence, he tends to see through a limited window and thinks his one solution is the solution to everything.

That's not my definition of being "good at what he has been attempting to do".
The Professor

[unblock]

10. i'll rephrase: he has largely gotten the results he set out to achieve

i'll agree that some of the results were achieved through dumb luck, accident, fiscal sanity during the clinton years, and other factors beyond his control.

presidential popularity is linked to economic performance despite the fact that the president often can have a huge impact, certainly not immediately, on the economy.

the fed chair can have considerably more direct, immediate impact, but there certainly is an element to greenspan's success of simply chosing good years to serve as fed chair, just as carter chose bad years to serve as president.

[ProfessorGAC]

11. I Can Buy Most Of That

I'm not sure that the Fed Chairman has the greater influence that you ascribe.

Fiscal policy, and GS decisions have a far more profound influence over economic health than most analysts claim. I can show significant modeling results that indicate the Reagan years short-lived successes due to how those deficits were spent, but couldn't be sustained into 41's years, because the borrowing exceeding the economic value of the "how".

The Clinton years on the other hand, showed the negligible impact of marginal tax increases, as long as the incoming funds were spent in a wise and judicious fashion. So, the short term impact of fiscal policy can, and usually is, huge.

In fact, i think that given the "bully pulpit" of the presidency, the confidence engendered by a president (or lack thereof as with Silverspoon), can make this impact far more immediate and of higher leverage than anything a Fed Chair can foment by saying or doing a single thing.

Certainly, they have some influence, but the interesting thing is that through most of the boom 90's he did almost nothing. It wasn't until he got "inflation silly" did he start overmanipulating rates, which did more damage than help. So, while i agree he's a lucky son of a gun, long range analysis will show he did more harm than good over his tenure.
The Professor

[unblock]

12. my point about fiscal policy is that there's a longer time to impact

given that federal budgets are a drawn-out, annual process; whereas the fed can say something drastic and have a very immediate impact on the economy. fed chairs usually are extremely measured in their public pronouncements (some would say cryptic) in an effort not to be disruptive. but an incompetent or reckless fed chair could certainly have a bigger impact by repeatedly roiling the markets with careless or conflicting remarks, which ultimately would have a very negative impact on the economy.

in the longer run, fiscal policy can certainly have far greater impact, from tax rates and deductions/credits to deficit levels to what to spend and invest in.


another take on it is that all the fed can do is either screw things up or not; they can't actually do good, they can only avoid doing harm. fiscal policy can steer in many directions if only because they have so many more levers to pull.

[ProfessorGAC]

13. Your Last Paragraph Sums Up My Feelings Exactly

Mostly better to do nothing. Interest rates should be manipulated in REACTION to some events not to control future ones. Doing the latter is mostly folly.

Nice chatting with you.
The Professor

[bryant69]

7. I think they are just good friends.

The market doesn't agree with his analysis which is why the long term interest rates haven't risen in line with his raising of the short term rates.

Bryant
Check it out --> http://politicalcomment.blogspot.com

[pitohui]

8. interest rates won't go anywhere near that high

have we been down in the toilet so long that we no longer even care that our older retirees have had no income to speak of from their CDs for yrs?

we do need higher rates to slow down this out-of-control inflation or at least allow ppl on a fixed income to keep up w. their bills, it is not like an 80 yr old can go find a job

we're going to be seeing a LOT of elderly ppl out on the streets, sort of surprised we haven't already

i would be happy w. 6-7 percent but don't expect to see that again any time soon