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May 8, 1998
In most years, a payroll report like this morning's would have triggered a quarter-percent rise in rates before breakfast, another eighth after lunch, and yet another over the weekend.
Scrolling across the bottom of traders' screens worldwide : "...6:30EDT 5/8/98... MARCH PAYROLLS PLUS 262,000, UNEMP DOWN .4% TO 4.3%... 28-YEAR LOW...."
1998 is not most years. Unsustainable job growth and unemployment be damned: long bonds are holding just under 6.00%, as they have all week; and mortgages are still in the middle of their 7.125%-7.375% range, now six months old.
All evidence -- save one piece -- says the Fed will raise the Fed funds rate at its next meeting, May 19.
Item: jobs data, above. Wages may be under control now, but with the job market so tight...? Not for long.
Item: Retail sales put in their largest quarterly increase in 10 years, except for the one in early 1994 coinciding with the first of seven separate Fed rate hikes.
Item: On Tuesday, chairman Greenspan met at the White House with President Clinton for the first time since January, 1997 -- 60 days before the Fed last raised the Fed funds rate. The President can't give orders to the Fed, but it's polite for the Fed to let the President know before doing something unpleasant, especially in an election year.
Item: On Tuesday, after the Greenspan/Clinton seance, Treasury secretary Rubin took great pains to attract press notice to the following: "I think in good times people tend not to be very rigorous about evaluating the stock market". Did he have an opinion about current stock market values? No, the secretary of the Treasury should not comment on that, but "Rigor is always appropriate...."
Item: On the same day, Michel Camdessus, managing director of the IMF, referring to the Fed: "They will have to move sooner rather than later...."
There may be nothing to any of this evidence, and all the jabber no more than a traditional effort to jawbone the markets. Always better to talk 'em to death than hit 'em.
Oh, almost forgot that one piece of contrary evidence.
One of the best Fed-watchers (David Jones) suggests that last week's contradictory leaks from the Fed were due to a split among the governors, who always try to reach unanimous votes at their meetings. A group of rebellious hawks wanted an immediate rate rise at the March meeting, and threatened to cast formal, dissenting votes. The hawks demanded (and got) a threatening leak last Monday, but someone else modified the threat in a second leak on Tuesday. Conclusion: leaning, but not imminent.
Who is hawk and who is dove, and which holds power?
For all his fearsome reputation, it seems that Mr. Greenspan is dove-in-charge.
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