Posted on 04/22/2004 1:43:35 PM PDT by Grampa Dave
Commentary: Greenspan describes Goldilocks economy
By Paul Erdman, CBS.MarketWatch.com Last Update: 5:59 PM ET April 21, 2004
HEALDSBURG, Calif. (CBS.MW) -- "We try to be forward looking, not only in terms of whether we'll move or not move on a particular date, but what does that imply on a whole program of change, if indeed we are changing."
No, it was not that Persian philosopher of ancient origins who spake these words of clarity and wisdom from on high. This sentence was uttered this week by the somewhat less ancient Alan Greenspan to a Congressional committee and a financial world that hung on his every pronouncement.
What does it mean? Answer: "We're keeping everything on hold."
For how long? Answer "Your guess is as good as mine."
So what's my guess? Despite the flurry of commentaries throughout the financial press: not soon.
Why? Because for the moment we are blessed with a Goldilocks economy: not too hot, not too cold, just about right.
In Greenspan's words, at present the U.S. economy is in a "vigorous expansion." Pricing power is returning. As a result, earlier fears of deflation have now been proved misplaced. So forget about deflation: it's a non-starter.
So what about inflation? Not to worry, yet. Because "the protracted period of monetary accommodation has not yet fostered an environment in which broad-based inflation pressures appear to be building."
The markets have reacted to these soothing words in a quite rational way. Instead of the yield on the 10-year Treasury spiking toward 5 percent as some feared, it seems to be settling into the 4.4 - 4.5 percent range. Gold fell by almost $7 to close at $391.40, the lowest close since November 11, 2003.
And the stock market continued to trade in a very narrow range. Because it remains skeptical as to how long these benign conditions will last.
My guess remains the same: probably until near the end of this year, which means that the Fed will stay on hold until then. After that between the pull of growth here and in Asia, prices are bound to begin to rise. The Fed will then begin to push up the Federal Funds rate in early 2005.
What happens after that I will leave to the imagination of science fiction writers.
In the meantime, nobody's going to be making a whole lot of money on Wall Street. But prudent investors will not have to live in fear of losing their shirts either.
So enjoy the Goldilocks economy while it lasts. A word of caution, however. Maybe her manservant, Alan, who is serving as both her chef and her hairdresser, has been doctoring her porridge and bleaching her hair hoping to hide the fact -- at least until the November election -- that she's healthier than we think.
Economist and author Paul Erdman is a CBS.MarketWatch.com columnist.
Then we hear/reads about great earnings and excellent economic conditions with Erdman's translation. That equals an excellent across the boards market day.
CNBC is getting to be a joke with their depressed talking heads nattering on about inflation, bubble this and bubble that. In the meantime the public is not paying anymore attention to them than Woodward is getting. Their sad song only appeals to the lunatic libs and the odd ones who want bad markets and economic condition.
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