|
July 20, 2000
Mr. Greenspan's generally peaceful testimony today helped mortgage rates, but only enough to nudge them down to 8.25%, the middle of the June-July range.
The Chairman's remarks were a model of clarity. He listed four reasons that "...spending on consumer goods and houses has come down several notches, albeit from very high levels."
First, a "diminution of the wealth effect", which is Greenspanese for a flat stock market in 2000. The Fed could easily have sunk the stock market in this slow-the-economy campaign, and it's no mean achievement to leave stocks precisely at a standstill.
Second, a "rising debt burden" is slowing consumers, as measured by six years of increases in interest and amortization versus disposable income.
Third, the "rise in the price of oil has amounted to a $75 billion levy by foreign producers on domestic consumers, the equivalent of roughly 1% of disposable income."
Fourth, a probability: that consumers have bought so many cars, houses, appliances, and other "consumer durables" that they can't possibly want any more. (I'm not so sure about that one.)
The best news in the speech: the Chairman's belief that "the productivity increase in recent years has been structural and that structural productivity may still be increasing." Italics mine. A very big deal: if productivity is still increasing, it takes the edge off the very tight labor market, one of the Chairman's two leading concerns going forward.
The other concern: "There has to be a limit as to how much of the world's savings our residents can borrow at close to prevailing interest and exchange rates." Italics mine again: if our trade deficit stays out of control for long enough, domestic interest rates will begin to rise to attract foreign capital to finance our spending on imports. Our deficit hit a new record this month, $31 billion.
That's it. Not one saber-rattle; six pages, and only one "remain vigilant".
However. (You knew that was coming...)
The Chairman: "...It is much too soon to conclude that these concerns are behind us."
He may be through with tightening, or nearly so, but he ain't about to ease. Unless and until the prospect of easing appears, it will be very difficult for mortgage rates to fall far below present levels.
We need a harder landing for that. If the Chairman succeeds in a splendid, smooth, bump-free landing for the economy, mortgage rates will stay airborne, above the low-sevens reached so often in the 1990's.
|
