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Anticipating the Fed's Timid Tuesday

Just what would a quarter-point hike accomplish, anyway?


JACKSON HOLE, Wyo. -- There is no reason to believe that the


will not act the sissy tomorrow -- just as it has been

doing since November.

A quarter-point hike. No change in the discount rate. A wishy-washy sentence about the policy bias -- if it is even mentioned at all.

Perfect Circle

And then there is (of course) the question as to what all such action would accomplish.

It worked

wonders last time. The bond rallied 15 basis points on the tightening announcement; its yield stands now precisely where it stood then. The yield on the two has risen a whopping 11 basis points over the past seven weeks.

And surely, O my brothers, that's the kind of fabric from which material economic slowdowns are spun.

Is it not?

You don't doubt it, do you?

Do you dare disturb the universe?

And then there are shares. Self-interested as they are, the people who peddle stocks for a living do have it dead right when they scream that it is not the job of our central bank to target asset prices.

Yet when the Fed throws out some of the

nuggets it does -- "The propensity to spend has been spurred by the rise in equity and home prices, which our analysis suggests can account for at least 1 percentage point of GDP growth over the past three years" -- then one is hardly loopy to wonder.

What will a sissy-move-induced rally do -- and one need only check the

musings of our trader friend to confirm that this crowd is salivating indeed -- to temper the rise in equity and home prices? And hence economic growth at large?

Moral Kiosk

And please don't take your humble narrator the wrong way here.

He cares none about whether the Fed is doing the "right" thing or the "wrong" thing.

Indeed. He leaves the questions of what the Fed "should" do -- of whether tightenings at this juncture amount to "punishing success" and "crushing prosperity" -- to be answered in the halls of



And in

Larry Kudlow's


The point here is to game the Feds. No matter what. Right or wrong, smart or stupid, sensible or senseless -- it doesn't matter. The point is to game them. Period.

And success on that front is possible only if they're playing fair. And telling the truth.


arguments they gave for the three easings they delivered last autumn no longer hold water; they have been talking

tough for more than a month now; and the things they said they would have to see in order to keep them from tightening further (inflation moving lower, final demand slipping below trend, labor markets loosening, and productivity accelerating faster than nominal compensation) have not come to pass.

And so the Feds now need to do one of two things.

They need to walk the walk now that they've talked the talk.

Or they need to come right out and say that they are so confident in their problem-solving ability that they will act to deal with trouble only once it surfaces -- to "mitigate the fallout when it occurs."

We Walk

The economy positively hummed in the face of a 5.30%

fed funds rate

in 1996, a 5.46% funds rate in 1997 and a 5.35% funds rate last year.

Why are so many folks -- Feds and private types alike -- convinced that a policy rate just north of 5 will be enough to take a big bite out of the economy now?

Do you dare to eat that peach?

Side Dish

Enough already?

Will and Grace


George and coke.

Chilean sea bass.

Fresh ground pepper.

Enough already? polls.