Why The Change In The FOMC’s Reaction Function?

March 19, 2004 6:35 PM by Mike Runge

"Pipeline inflationary pressures are greater and the economy is stronger today than they were ten years ago when the FOMC began raising the fed funds rate. Why is the FOMC reluctant to raise the funds rate now?" Another good read from Paul Kasriel at Northern Trust.

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If Foreign Central Banks Were To Sell US Treasuries

February 11, 2004 5:37 PM by Mike Runge

Today, Federal Reserve Chairman Alan Greenspan on Wednesday played down the risk to U.S. bond markets if heavy official foreign buying dried up.

Paul Kasriel (Northern Trust Company) has a thought about what would really happen if foreign demand were to fall:

"In effect, the Fed would monetize the U.S. government securities being sold by foreign central banks. Although this would prevent short-maturity interest rates from rising, it might actually lead to higher longer-maturity interest rates. Why? Because the Fed’s monetizing of debt has future inflationary implications. Rising inflation expectations would drive up the nominal interest rates on longer-maturity debt. So, Greenspan is only partially correct about the effect of foreign central bank sales of U.S. government securities. These sales would not necessarily drive up short-term interest rates, but would probably drive up long-term interest rates."

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Little hope in U.S. on yuan rate

February 11, 2004 5:21 PM by Mike Runge

There have been rumors in the last few days that China plans to let the yuan rise against the dollar. This IHT/NYT article thinks that is fairly unlikely:

"But representatives of American unions and manufacturers, along with many economists, said on Tuesday that the yuan would have to rise 20 percent or more to make much of a difference in trade flows - a currency move that no one has forecast."

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