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March 31, 2000
The Nasdaq oops-a-daisy this week -- down 4%, though still up 9% this year -- suppressed a modest rise in mortgage rates. Thirty-year, low-fee packages remain in the middle of a 90-day range, available near 8.375%.
Economic data describe an economy impervious to Fed tightening -- so far.
919,000 new homes sold in February, steady on the blistering pace of the last year. While median sales prices are easily distorted by changes in the mix of homes sold, the 5.8% rise in median sales prices year-over-year fits neatly with the scarce inventory of new homes, now down to a four-month supply.
Fourth quarter 1999 GDP was revised to 7.3% growth from 6.9%, but even at that unbelievable pace inflation remained under control. The two best measures of inflation are GDP-related: the "deflator" held rock-steady at 1.9%, and the "personal consumption expenditure price index" likewise firm at 2.5%.
As respected as Mr. Greenspan is, his campaign to correct "imbalances" may soon face serious political opposition for the first time since he has been in office.
His rate-raising campaign to date has relied on that universal respect for support, as there is still no overt sign of inflation, despite a theoretically deadly accident like $30/bbl oil.
However, there is no native well of support for Mr. Greenspan's evident targeting of the stock market, and his rhetorical effort to cover his intentions has worn thin -- in the wrong place, Congress.
Mr. Greenspan got a testy response in Congress after his February 17 speech unambiguously took aim at the stock market ("...grow no faster than household incomes"), and he also got some formal questions requiring a written response. The answer to House Banking Chairman Jim Leach's question about the stock market as Fed target, released by Leach yesterday:
"The Federal Reserve is not "jawboning" the stock market or targeting stock prices."
Okay, cool... but one sentence later:
"The sharp increase in equity valuation appears to have been an important factor behind an apparently developing imbalance."
Not so cool. This distinction is sophistry, mere fiddling with words. The Chairman may be correct to target the stock market, but his denials that he is doing so are beginning to annoy the wrong sort of people.
Politicians.
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