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Animal Crackers in the Wing Nuts' Soup

Some Fed watchers have been wrong all year. What a record!


JACKSON HOLE, Wyo. -- Are you kidding me?

Are you ^$%! kidding me?

Now the mouthpieces and economic forecasters who have been dead wrong about the


for the better part of a year -- people from

John Berry


The Tool

(more on him below) and the stableful of

Tool Juniors

he's sired -- are going to torture that

statement until it screams that another 1999 tightening is unlikely?

The Feds said that two tightenings and a firming of financial-market conditions "should markedly diminish the risk of rising inflation going forward."

That's what the Delta-Minuses jumped on. That's what they claim "made it clear" that the Feds are not "likely to raise rates a third time this year."

Hey, people?

That "should markedly diminish" garbage is a forecast.

This it is and nothing more.

And it's a Fed forecast at that.

That means it's seven parts hope and three parts prayer.

And that means it's entirely and unambiguously worthless.

This column has

documented the fact that the Feds have failed to forecast either growth or the price measures with any degree of accuracy at all during the past few years.

Keep it in mind.

Pigs on the Wing

Now back to The Tool.

Can I pull a



When is this

Brian Wesbury

guy going to admit that he has been dead wrong -- your narrator will pay cash for evidence of someone who's been wronger -- and then shut up and go away already?

This guy is everywhere. He's in the

Investor's Business Daily

whining that the Fed has "cost investors hundreds of billions of dollars, especially in the bond market, since it started crying wolf about inflation early this year"; he's in

The Wall Street Journal

begging the central bank to wise up and "listen to commodity prices and let the economy run"; and he refuses to get the hell out of my television.

He's constantly working tirelessly to promote his single, and he sings loudly enough that we can't just tune it out.

So he's fair game.

And this is what he's had to say since last autumn.

    October 1998 The yield on the 10-year Treasury fell below 4.15% today, a low not seen since November 1964. ... Yields are likely to remain low and should fall further in the months and years ahead. ... History suggests that today's low interest rates are not an aberration. ... Bond yields could fall significantly further and the odds of a sharp spike upward in yields are minuscule. January 1999 Interest rates will head significantly lower in the months ahead as deflationary pressures and Fed easing make another comeback. ... We forecast 4.5% 30-year Treasury yields by midyear and 4.0% yields by year-end. February 1999 We continue to expect Fed ease and lower rates in the year ahead. ... We continue to forecast a sharp drop in yields during the months ahead. March 1999 The bottom line is that fears of Fed tightening and rising inflation were premature and overdone. Look for bond yields to begin falling as the reality of the New Era begins to sink in again. April 1999 We continue to believe that the next Fed move will be to ease policy, not tighten. ... We continue to forecast slower growth, much lower inflation, and Fed ease in the year ahead. May 1999 We continue to forecast that the next Fed move will be to ease monetary policy, not tighten. ... The economy is slowing, deflation remains a serious issue, and the Fed is too tight. June 1999 By taking out insurance against the "wealth effect" and the Phillips Curve, the Fed will actually increase the odds of deflation. ... No matter what the Fed does on June 30, 30-year bond yields are heading to the 5.0% to 5.25% range by the end of 1999. Second week of July The Fed will be on hold and bond yields will head lower in the weeks and months ahead. Third week of July We continue to forecast that the next Fed move will be to ease. ... The economy appears to be slowing. ... The overwhelming nature of the data is beginning to have an impact. ... We are more confident of our forecast than ever. Fourth week of July We continue to believe that any future monetary policy tightening is unlikely. ... The slowdown should be enough to keep the Fed on hold no matter how hawkish it may sound. Third week of August We also believe that no matter what the Fed does on August 24th, after that, rates will not change for the rest of this year. ... The rise in long-term interest rates appears to have accomplished what the Fed has hoped -- a cooling of the economy. ... We continue to forecast that bond yields will head lower in the months ahead. Monday We put the odds of a hike at about 45%. ... No matter what the Fed decides tomorrow, there will be no more Fed rate moves in 1999. In addition, we continue to believe that 30-year Treasury bond yields will fall toward 5% over the next few quarters and that the Fed will ease in early 2000.

Well? Can you think of any other profession in which someone exhibiting such utterly sorry performance could keep a job?

And to the people who keep writing in to call me a "mean ^$%!" for picking on people?

Quit it already. Save the self-righteousness for church.

The point here is to learn something from the "thinking" that produces such stupid useless forecasts. If you ain't liking what happens on the boat, then you probably ought to quit climbing aboard.

Look. The Fed recently handed out a roadmap. And the people who were dead wrong about what happened yesterday -- people like The Tool and Tool Juniors, John Ryding of

Bear Stearns

and Larry Kudlow of

This Space for Rent

-- chose not to follow it.

They chose instead to skip down a gold-brick road.

Some people may deem such rebelliousness romantic.

Others would call it stupid.

Choose the one that's right for you.


The figures from the July

durable goods

release that will make their way into the third-quarter

gross domestic product

number reveal a business investment profile much stronger than most forecasters had penciled in. Look for growth estimates for the July-August-September period to be marked up as a result.

Shipments of nondefense capital goods excluding aircraft are on track to turn in a third-quarter (annual) increase as big as 17% -- compare that to the 4% gain that looked likely just a month ago (and note that it would go down as the biggest increase since the fourth quarter of 1993).

Long story short, business investment surged 15.3% (and added 1.18 percentage point to overall growth) during the second quarter. Right this minute it looks to rise even more than that (and add even more to growth) during the third. (See this

column for details about how the durables release fits into the broader business investment and GDP pictures.)

Even further out? Orders for nondefense capital goods excluding aircraft are on track to post a 14% third-quarter increase. And, because orders during one quarter generally predict shipments during the next (a drop in fourth-quarter 1998 orders, for example, correctly predicted the decrease in first-quarter 1999 shipments), that increase works against the notion that investment is slowing meaningfully (or even at all).

Indeed. It is still early in the game -- July numbers could well be revised down sharply, and shipments and-or orders could crash suddenly -- but it looks like the going-on-two-years-now predictions of a business-investment slowdown from both the Feds and most private-sector forecasters are looking sorrier than ever.

Side Dish

All apologies (once again) for not being able to answer all of the mail.

I hope you will continue to write. I read every note.

And hey. The May/June issue of the

New England Economic Review

serves up a

piece about recent economic performance. It's worth checking out.

And hey. Girls today. Guys tomorrow.

Best dressed?




Kathleen (either).