Over the weekend senior officials at the Fed
worked the phones.
His concern echoed Hoenig's argument in May: The Fed
may have already eased too much.
In December 1998, Fed authorities declared that henceforth they would announce changes in the Fed
's policy bias regarding the likely direction of short-term interest rates immediately, if it represented a significant shift in Fed thinking.
Presumably, they would return Once the Fed
got it right.
They say they reversed their decision to cut the discount rate at the meeting not because of Volcker's resignation threat but to give the Fed
chairman time to persuade the Bank of Japan and German Bundesbank to join the Fed
in a coordinated rate cut, which, in fact occurred ten days later.
While inflation is only slightly above the Fed
's comfort zone of between 1-2%, the consensus among economists is that it remains threatening enough to curtail a slackening in rates.
Greenspan, former chairman of President Gerald Ford's Council of Economic Advisers, served as head of a Social Security reform commission during the first Reagan administration, then took over the Fed
from the great inflation buster Paul Volcker.
Not only did Greenspan fail to raise rates or margin requirements, but also in the late 1990s, the Fed
chairman actually began to talk in glowing terms about the New Economy, conceding that technology had helped increase productivity.
If the Fed
is focused solely on creating positive inflation at a time that both productivity and aggregate demand are high, it will create too much liquidity as a byproduct.
Once again, this reflects the perverse economic priorities that have been fostered by the Fed
. In recent years, the Fed
has defined its mission as that of stimulating "aggregate demand" in order to keep the economy afloat.
's target interest rate on federal funds is followed closely, and expected changes in the future rate can affect the behavior of individuals and institutions.
According to Mayer's uneven account, which vacillates between gossipy insider stories and dry detail, the Fed
is the "umbrella supervisor" for everything financial, but knows and cares little about insurance, securities and, especially, derivatives.
It looks as if the Fed
is still using a traditional Phillips curve tradeoff between falling unemployment and rising inflation.
didn't cause the boom," says Lee Hoskins, who served as president of the Cleveland Federal Reserve Bank from 1987 to 1991.
Business leaders have begun pointing out how the Fed
has squeezed the economy in general and their companies in particular.