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March 18, 1994
Mortgage rates have found the top and bottom of a trading range: over the last two weeks, 30-year loan rates have bounced between 8.125% and 7.875% (both are no discount, no origination rates). However, rates are rising from the low today despite reasonable news on inflation.
The Producer Price Index jumped .5% in February, but the "core" rate (which removes the effect of a surge in the cost of heating oil) rose only .1%. Consumer Prices rose .3% no matter how you counted them.
There is no phony anxiety about Whitewater this week. This time there is something real to worry about.
Yesterday, Mr. Clinton asked Mr. Greenspan to cancel his Friday morning plans, and join the president for a chat at the White House. At this hour (noon Friday), there is no public information about the subject of the prayer meeting.
There will be little information released to the public, other than the obligatory "Šuseful conversation." The Fed is very tight-lipped about such things, and its security is good (fortunately, independent from the CIA). The White House, on the other hand, is a sieve, and leaks will be forthcoming within hours.
There are only two likely matters for discussion between the president and the chairman, and neither is pleasant for bonds or mortgages.
The obvious topic is a request from the president to cool it with the tightening, please. The Fed has a formal meeting on Tuesday, March 22, and everyone expects the Fed to discuss only how much to tighten and when.
If the president's intent is to lean on the chairman, asking him to clear his calendar, and fly in from Texas on half-day notice is an odd way to do it. Such a demand is an indication of urgency at a minimum, and possibly a loss of patience (not one of Mr. Clinton's strengths in any event).
Nothing good can come from an effort by Mr. Clinton to tell the chairman not to do what he thinks he must do. The bond market will assume the president prefers inflation to slower growth. Further, if the chairman proceeds against the wishes of the president, the markets will assume that the president will not re-nominate Mr. Greenspan next year. Mr. Greenspan is probably the best chairman the Fed ever had.
Possible topic number two involves North Korea, the failed inspection of its nuclear facilities this week, Secretary Christopher's recent return from China, and reports of an American fleet gathering in Korean waters. Underway may be anything from threats of a cruise missile strike to revocation of China's "most favored nation" trading status, and consultation between president and Fed chairman about financial fallout.
It's a miserable choice, but I'd rather cope with a foreign policy mess than take the consequences of Bill Clinton fiddling with the Fed.
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