Treasury Sec. John Snow: US interest rates 'to rise soon'

Times of London ^ | October 20, 2003 | Anatole Kaletsky

[nwrep]

October 20, 2003 US interest rates 'to rise soon' By Anatole Kaletsky AMERICAN interest rates are set to rise over the next few months, one of President Bush’s most senior officials told The Times this weekend. However, far from being a dampener on the economy, John Snow, the US Treasury Secretary, said that Washington would welcome such a move because it would underline the strength of the country’s growth prospects. Given the American economy’s new-found strength, Mr Snow said he would be “frustrated and concerned” if there were not some upward movement in rates. Expectations of tighter US monetary policy began to take hold on Wall Street last week after speeches from two senior Federal Reserve officials, which drew attention to the exceptionally wide gap between today’s low interest rates and the US economy’s booming growth rate. However, Mr Snow’s comments, in an exclusive interview with The Times, offer the clearest sign so far that the US interest rate cycle is turning. While Mr Snow refrained from discussing monetary decisions, which are left to the Federal Reserve Board, his comments implied that the Bush Administration was preparing for much higher rates in the election year ahead — in contrast with Wall Street, where many leading banks are still predicting that there will be no tightening of monetary policy until 2005. Mr Snow, referring to his previous Times interview in July when he described the US economy as “coiled like a spring”, joked: “The spring has now sprung.” The estimates of private economists, based on recent consumption and output figures, suggest that the US economy may have grown by up to 7 per cent in the third quarter. Although Mr Snow did not endorse these estimates, he said that growth in the year ahead would be about 4 per cent and would “produce loads of jobs”. Referring to the rule of thumb that the US must generate 200,000 jobs a month to cut unemployment, he noted that 4 per cent growth would “translate into roughly two million new jobs from the third quarter of this year to the third quarter of 2004 – that’s an average of about 200,000 a month”. He added, “I would stake my reputation on employment growth happening before Christmas. I’d bet dollars to doughnuts that we’re going to see a pickup in jobs in the next few months.” Asked about the impact of such rapid growth on interest rates, Mr Snow said: “Interest rates are the price of capital. As profits increase, there is going to be a need for a capital-rationing process. “I’d be frustrated and concerned if there were not some upward movement (in rates).” He rejected the widely held view on Wall Street, that the Fed never raises interest rates before a presidential election. “It is amazing how you get this sort of mythology without any factual backing,” he said. Questioned on the dollar, Mr Snow said that the US policy had been misunderstood by many commentators, although not by the markets themselves. The dollar fell sharply in the month after a statement issued in Dubai by Group of Seven ministers, which called for “greater flexibility” in exchange rates. He had hailed this statement as “a milestone” and this comment was widely interpreted as a hint that the US wanted to see the dollar decline. Mr Snow said the milestone he had referred to was the commitment of all the G7 countries to stimulate domestically led growth. The US had never intended to talk the dollar down against other currencies, whose exchange rates were set by the market, he said.

[hopespringseternal]

Maybe you should start with a cheaper house. I always want to get something I can afford, most young people like to start at the top.

The irony being that young people with children actually have a need for a larger house than older people with none at home.

Housing is a funny kind of a thing compared to most spending. It isn't exactly an investment, since you pay so much in interest. It is a need and a cost, but the equity you build lets you treat it somewhat like an investment.

I know lots of folks who had a huge house they could "barely afford" when they were young, but then sold the house when they retired and bought a much smaller one and put a nice infusion of cash into their golden years.

Not exactly sound investment advice, maybe, but so often "sound investing" boils down to absurdity. It is some broker telling people, "Live on beans and rice in a one room shack, buy 20X your salary in insurance from me and give me the rest to invest for you. Someday I will give it all back and you'll be rich."

[blackie]

Gee, do you mean everything isn't going in the toilet as the democRATS would have us believe. :)

The evidence is there ~ Too bad that the pro-terrorist democrats and their left-wing lackeys in the media are so brain dead!

[mlmr]

Pandering to the elderly? How about calling it rewarding those who spent their whole lives paying their bills, raising children, working hard, and saving for their futures with at least a 5% interest rate on long term CDs?

How about giving middleaged middleclasss families with children a break?? Interest rates have been historically low, Many of the elderly had at four and three percent house mortages in the forties and fifties. I float the boat for SS. I could use the break.

[grania]

How about giving middleaged middleclasss families with children a break?? Interest rates have been historically low, Many of the elderly had at four and three percent house mortages in the forties and fifties. I float the boat for SS. I could use the break.

I'm in my late 50s. My generation didn't get a tax break, didn't get those low mortgage rates, and didn't even get child care subsidies for working parents. You don't "float the boat" for SS...it's floating just fine, and will be for some time to come, unless people actually buy into the argument that they'd be better off working the stock market for their pensions.

You think it's expensive now? What about all of the people who would lose everything in the stock market because they'd make bad decisions. The way to keep costs down isn't to impoverish retired people, it's to eliminate any kind of subsidy of prescription drugs or insurance policies for them. The costs would go right down if people actually had to think about paying for the over-drugging of elderly America themselves.

[mlmr]

Well, if you have retired early and are living off your interest, that is your issue. You should have chosen a better portfolio. You may have missed the great interest rates of the fifties and early sixties but many of the SS receipents have not. As far as people who lose their pensions becasue of low interest....well they would have to use the traditional methods of making it through retirement, relying on their children and cutting back their lifestyle. No more two homes....awwww. No more trips to Atlantic City.....awwww. No more cruises....too bad. No more endless golf games.....tough.

[grania]

No more two homes....awwww. No more trips to Atlantic City.....awwww. No more cruises....too bad. No more endless golf games.....tough.

You are so into stereotypes. Most of the people I know live in (and own) the modest houses they raised their children in. Most take one or two off-season vacations they can afford each year. Golf games??? Isn't that where yuppie CEOs decide how to screw pensioners? (see, I can stereotype, too)

Now, you just go back to your mini-mansion and complain how the reason you can't afford that, your three cars, your $50,000 mastercard debt and your kid's private schools because some selfish retirees actually want enough money to survive.

<^..^>

[thefamous]

The Federal Reserve - What Is It? Who Is It?
http://www.freerepublic.com/forum/a3b13c8401f8f.htm

[riri]

Well, I went down to the local supermarket to get this year's flu shots since my pediatrician was not going to get them in until November. I live close to a pretty affluent senior golf community and since it was a weekday it was me, my kids and about 25 seniors.

I had to dish out $60.00 to get the shots. They were falling all over themsleves picking through their various forms of health insurance, supplements, etc. to get to the medicare card to get their shot for free. Then they got in their Lincoln's and drove home to their $250,000 winter home on the links.

Burned my butt.

[mlmr]

I am happy to see people survive. That is what I am doing. no minimansions here. Most of the elderly that I know both relatives and acquaintances are living it up with all the above....and they receive a check from me every month. I couldn't afford to put my children in private school. I am working full time and homeschooling four children full time. We are managing....but it is difficult. I sure could use that money I put into the ss coffers each month for grandpa to have his next tee fee.

[grania]

I had to dish out $60.00 to get the shots. They were falling all over themsleves picking through their various forms of health insurance, supplements, etc. to get to the medicare card to get their shot for free. Then they got in their Lincoln's and drove home to their $250,000 winter home on the links.

One of my earlier posts on this thread I wrote that I don't think anyone should get subsidized health care, either directly or through government paying insurance. Prices would go down pretty quickly if people actually had to think of the value of their medications. Burns my butt, too, but I'm actually glad that the health-store stuff I prefer isn't covered by the government or insurance. Why? Coverage is control.

[grania]

We are managing....but it is difficult. I sure could use that money I put into the ss coffers each month for grandpa to have his next tee fee.

Social Security isn't really paying for the tee fee. Social Security is meant to be a safety net so Seniors can survive. If people have supplemental income from saving, a part time job, or investments, good for them!

[RightWhale]

It was the decline in interest rates that led to the weakening economy. Interest rates should be higher, but not too high as they were under Pres Carter. With higher interest rates, the economy should take off like a rocket.

[steve50]

Going to have to run to the store tomorrow. The fun and games are just starting and we have a front row seat. Sit back, relax and enjoy the show. Richard W

You sound like the Bescemi(?) character in Armagadden. Think it's time to "Embrace the horror)?

[arete]

You sound like the Bescemi(?) character in Armagadden. Think it's time to "Embrace the horror)?

The hubris and arrogance of our leaders in their efforts to force their own "sqaure peg" thinking into a round hole has put us all at risk, like it or not. I've done what I can to place myself in a defensive postition and now it it time to sit and watch it all play out.

Richard W.

[mlmr]

I think it is great for people to have great investments. I don't think that people with great investments should be talking money out of the pockets of their chidlren and grandchildren. I am tired of providing a security net to people who don't need one..... That was the generation that expanded social security instead of making hard choices and diffenent programs.