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September 2, 1994
Reports of a modest slowdown in the economy have taken mortgage rates down near 60-day lows.
Non-Farm Payrolls rose by 179,000 jobs, only two-thirds of forecast. Though the Purchasing Managers' Index slid to 56.2% from 57.5%, it contained an inflation worry: 74% of managers paid higher prices than in the prior month, a six-year high.
The new COFI value is 3.860% (up from 3.804%), while the one-year T-Bill index fell a hair to 5.61%.
Last weekend at Jackson Hole, Wyoming there was a conference of many of the world's central bankers.
These worldwide Fed heads gathered to relax in informal clothing (for these guys, informal means that one of them had loosened his necktie). They even had a barbecue one evening, presumably fired by newly-printed money. While not socializing over money, they exchanged thoughtful speeches about money. Morticians have livelier shop talk.
The central theme of central banker thinking about money is how to keep it "hard," and inflation-free.
A newly-minted central banker, Alan S. Blinder, spoke at this conference. Mr. Blinder, a Princeton professor with little practical experience, was Mr. Clinton's first nominee to the Fed. Mr. Blinder is the Fed's Vice Chairman, and is thought to aspire to replace Mr. Greenspan as Chairman when his term is up in early 1986.
In his remarks, Mr. Blinder insisted that it was possible to hold down unemployment for several years by providing easy money, while simultaneously causing no increase in inflation. Though the other bankers were too dignified to take public offense at an amateur performance (Blinder didn't bother to prepare his text, and blathered off the cuff), their quiet disgust was leaked to the media.
Central bankers believe that inflation-free money is possible only through single-minded effort. If a central bank is encumbered with other, political objectives, the hard-money goal is impossible.
The United States is the only major nation where the central bank has a simultaneous obligation to provide hard money and full employment (by act of Congress in 1978, which the Fed largely, and fortunately, pretends to obey).
The Bundesbank has only one responsibility: hard money. Japan, same deal. Mexico has hard money, now. The chief central banker in New Zealand has an employment contract which automatically fires him if he lets inflation rise above 2%. It is not an accident that the overall, long term best-performing economies have central bankers who provide hard money.
Bill Clinton provides Alan Blinder. Keep an eye out for Mr. Blinder. It would be bad enough if Mr. Greenspan isn't re-appointed, but if Mr. Blinder is the replacement, even New Zealand may not be a safe distance away.
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