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July 24, 1992
Long term interest rates show signs of a dive, pushed by extremely low yields on short term securities.
A surprise 19,000 jump in Initial Jobless Claims also gave bonds an assist. This report has become a bond market statistique du jour as it is a good leading indicator for the monthly nonfarm payroll figure.
Federal law requires a semiannual meeting between the Chairman of the Fed and Congress, in which the Chairman must present a forecast for monetary and economic growth.
This testimony requirement was created in one of several efforts by Congress to get the Fed to be a stationary target. The Fed's secrecy, delayed reporting of decisions, and economic arglebargle has made it hard for Congresspersons of one party to blame the Fed's behaviour on the other party.
So, brave and bored, the Fed's best baffler, Alan Greenspan, hiked to Capitol Hill to testify this week.
As demanded by Congress, he recited the Fed's objective for money growth. The Fed discovered a long time ago that it would be suicide to provide a single percentage growth rate for the money supply. The standard pratice is to give Congress several targets.
The Chairman presented this year's target "range" for growth in M2: somewhere between 2.5% and 6.5%. One end of that range would describe a minor boom, the other slim to no growth in the economy at all.
At moments like this, Alan Greenspan can deliver a straight face worthy of Calvin Coolidge and Sitting Bull. The M2 range is absurd in itself. But here's the goofy part: M2 hasn't grown as fast as the bottom of the range in a year, and has been in outright decline for months.
This money supply contraction could be a sign of something horrible. But when a matter as scary as this turns up, the interrogating Congresspersons behave like parents trying to discuss sex with a sixteen yearold. We have some advice, we're interested in what's going on, but don't tell us all the details.
In some blaze of honesty, this question might be asked: "Mr. Chairman, while we in Congress have been frittering away the nation's savings, and the president has been busy with the rest of the world, have you been running your own antiinflation war without telling anybody?"
The Chairman might then give a direct answer: "We have reduced interest rates 23 times since 1989 [true!]. However, we have tried each time to be just late enough to keep the economy weak, and to throw more people out of work."
Thus is inflation tamed.
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