|
June 11, 1993
Good news.
The first of the two inflation reports for May, the Producer Price Index, held unchanged from April, and long term interest rates are poised for new lows. Rates may take the plunge as soon as Tuesday, if the consumer price report due that day is as pleasant as today's.
Initial Jobless Claims held the 340,000 range for the sixth week in a row, and May Retail Sales gained only .1%.
Today's inflation news has ended a two-month Federal Reserve workout with the ol' jawbone.
Back in April, when the inflation news looked grim, the Fed arranged a series of leaks indicating a wish to tighten credit. The orchestration was complete with complaints about the leaks (public leak-plugging always adds authenticity to the original story).
When the Fed is nervous about inflation, it first tries to reassure the bond market with threats of fierce action. (Note: mortgage borrowers are always confused about a tight Fed. A tight, vigilant Fed is good news for mortgage rates.)
Ordinarily, such leaks draw an instant response from the White House: "Bad judgmentŠ. "Give the president's plan time to workŠ. "Not justified in a weak economyŠ." The best White House line, "Fears of inflation are prematureŠ." usually follows some truly hideous report.
This time around, the White House was preoccupied with other matters too miserable to describe, and the Fed had to work up a sweat all by itself.
Until yesterday.
Instead of waiting to see whether or not there really was an inflation problem in today's report, the White House felt it necessary to haul out its own jawbone. Now that George Stephanopolous has been embalmed in some new office, Dee Dee Myers handles the official blather.
Here it came: "Šno real inflationary pressureŠ." And, in an excess of spokespersonship, said "Šchairman Greenspan thought that the President's deficit reduction plan would help keep interest rates down."
The chairman demanded a "clarification," and got it in two hours: "The chairman does not in any way endorse the President's economic package now before Congress."
Sit down, Ms. Myers, or they will send you wherever it is that they sent George.
There is one bright side to this amateur hour White House. Its collective stature is so low that no one has the normal fear of getting on the President's wrong side.
An inability to induce fear makes it hard to get anything done in Congress, but a fear-free zone has a liberating effect on the Fed. Bond traders are pleased that the Fed can do anything it deems appropriate to prevent inflation.
|
