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More on Fed Comes Under Fire Again

Posted By Barry Ritholtz On May 11, 2004 @ 3:20 pm In Finance | Comments Disabled

I wrote earlier [1] that the sooner the Fed hikes, the better. Here’s the opposing view from an anonymous colleague:

The FED is between a rock and a hard place. We are absolutely addicted to easy
money which has caused a very big debt bubble, to name just one side effect. The leverage in the marketplace is staggering. We have inarguable evidence of cost-push inflation. Oil has hit $40 per bbl. OPEC has been very intransigent up to the moment. Is this the time to start raising rates?

I gotta’ think not yet. First of all, there is a tendency not to take cost-push inflation seriously. As a matter of fact, I’ll bet they are pretty comfortable with cost-push because the thinking is that: a. the jawboning they are doing on higher rates has “worked” so far in that an awful lot of spec-monkeys have been shaken out of the commodities trees and b. as China cools, commodities prices will soften. Wasn’t this just mentioned by the Maestro? Absolutely. So there’s a hint right there. So maybe they are not so alarmed unless inflation gets to the demand-pull stage. (Ask the auto industry if they’re seeing any demand-pull. Yee-ha).

And as mentioned above about lack of wage growth, the ugliest form of all inflation, wage-push, is not even close to being an issue.

Last, do you think that Novak got the story about the first hike coming in the fall during a vision? There is about a 99% possibility that it was leaked to him with a goal towards becalming the markets by giving him a “schedule”.

Valid points all.


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[1] wrote earlier: http://bigpicture.typepad.com/comments/2004/05/sell_in_may_but_1.html

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