|
September 8, 2000
Mortgage rates are stuck: 8.00% it is, has been, and will be until something important happens.
It will take substantial slowing in the domestic economy to drive interest rates lower, or an acceleration to take them higher. Of the two possibilities, odds now favor slower and lower, but there is no large-scale downshift on the visible horizon.
Other events which might rise to "important" status? Oil prices broke $35/bbl this week for the first time in ten years, and inventories are so low that a spike is possible. However, the economy has been impervious to a tripling of oil prices in the last two years, and shows no sign of high oil prices percolating into the general price structure.
New Englanders may pay some astounding prices for their heating oil this winter, and briefly suffer dry tanks, but their discomfort won't include national inflation.
The election? Albore seems to be pulling ahead of Dubya, who has kinda sorta fergot t'campaign. Even a Democratic sweep of Congress won't do immediate harm in the markets; a post-sweep Lurch to the Left would do damage, but extended Clintonism wouldn't bother bonds at all.
Right now, it seems the next big change in interest rates is more likely to have foreign origins than domestic.
The extraordinary American economy is providing a ready market for European exports in the near term, but stressing European economies in unsustainable ways.
America is sucking in capital faster than imports: our interest rates are high, providing better yields than those in Europe, and our stock market has been the investment of the century. In one result, the dollar is strong and the euro is weak -- unbelievably so: the euro has lost 26.5% of its value since first issuance in January, 1999.
The collapsing euro and inflationary pressure from overheated export industries have forced the European Central Bank to raise its rate. So far, only another .25% to 4.50%, two percent under the equivalent, Fed funds rate here; but any rate hike adds to the global slowing pressure initiated by our Fed last year.
Japan's slow-motion submergence continues: July industrial production sank .7% versus a hoped-for .1% gain, and retail sales fell .5% -- the 40th straight monthly drop.
In a suicidal divorce from reality, the Bank of Japan raised its overnight rate by .25% last month.
Moodys yesterday cut Japan's credit rating for the second year in a row, and warned of another downgrade soon.
There is no sign of a replay of the 1997-98 global financial crisis, but central banks controlling 85% of the world's economy have raised their rates.
True-blue central bank believer that I am... simultaneous fine-tuning is prone to accident.
|
