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Keep an Open Mind About the Open Market Committee

I'm not saying a half-point hike's coming. It's just that Greenspan's not as predictable as people think.

Sally Cinnamon

JACKSON HOLE, Wyo. -- Cut it out with the gradualism thing already.

The guy pushed through two half-point increases during the 1988-1989 tightening cycle (June 1988, March 1989). He pushed through three half-point decreases during the 1989-1992 easing cycle (February 1991, December 1991, July 1992).

And most important? During the 1994-1995 tightening cycle?

Four big consecutive increases.

A half-point hike in May 1994 (note that that was the fourth move of the cycle). Then another half-point increase in August. Then a three-quarters-point hike in November. Then a half-point increase in February 1995.

The guy was overly easy in autumn 1998 and he's been way way late in doing something meaningful since, but he has shown that he can behave responsibly at certain points in the past.

For people to be droning on and on -- former central bankers now happy to appear regularly on bubblevision, especially -- about how an outsized move is out of the question because they guy is now and always has been a gradualist is both stupid and misleading.

The Hardest Thing in the World

Here's a time line -- a captain's log, if you will -- of the events that led up to the April 1994 intermeeting hike.



FOMC meets as scheduled and raises interest rates for first time in five years. It hikes the

fed funds rate

to 3.25% from 3% (the discount rate remains at 3%).


G. Love cancels a scheduled speech in Texas to meet with President Clinton at the White House to discuss the economy.


The FOMC meets as scheduled and issues the following statement five hours later.

Chairman Alan Greenspan announced today that the Federal Open Market Committee decided to increase slightly the degree of pressure on reserve positions. This action is expected to be associated with a small increase in short-term money market interest rates.

Translation: The funds rate moves to 3.50% from 3.25%. Discount rate remains at 3%.


The FOMC meets by telephone to approve a Treasury-Fed plan to lend Mexico up to $6 billion to support the peso.


The Fed releases minutes of its February meeting. They reveal a unanimous vote for higher rates (some members wanted a bigger increase). Committee explains that "in the context of low and decreasing slack in the economy, little further progress would be made toward price stability in 1994, and there was a distinct risk of higher inflation at some point." The committee also cites "very low or even slightly negative real short-term interest rates" as evidence of a highly stimulative policy.


G gives a speech in Florida.

Despite the unambiguous evidence of recent economic improvement, there continues to be deep-rooted foreboding among a number of American families that current and future generations will not live as well as previous ones. Such expectations are not only surprising but clearly too pessimistic.


Texas Democratic Rep. Henry Gonzalez announces that the House Banking Committee will hold an April 13 hearing to which key regulators and hedge-fund operator George Soros have been invited. He also asks the Treasury to adopt a rule requiring hedge funds to report their large positions in U.S. government securities upon request. Says hedge funds "deserve extra scrutiny because their massive clout, fueled by large credit lines from banks, is used for speculative purposes."


The March employment report hits the tape. It reveals a massive 456k increase in payrolls.


Kansas City Fed President Thomas Hoenig gives a speech at the University of Wyoming.

The fed funds rate is still fairly low.


John Berry of

The Washington Post

, citing unnamed central bank officials, reports that "the Federal Reserve is unlikely to change short-term interest rates until the financial markets calm and policy makers assess the economic impact of tumbling stock prices and rising long-term interest rates."


The Guardian

reports that "the U.S. central bank has decided to cool its heels. Fed officials have put out word, through

The Washington Post

, that for the moment they do not wish to add to the confusion by raising short-term interest rates again."


Merrill Lynch's Bruce Steinberg comments on the possibility of a near-term hike.

With so much market volatility, it never seemed likely that the Fed would immediately spill more gasoline on the fire. There is every reason to believe they will wait.


The New York Times

reports that "Federal Reserve officials say they see no signs of accelerating inflation, but the nation's central bank is signaling anew that it will raise short-term interest rates again anyway."


Twenty-seven days after the last FOMC meeting -- and 29 days before the next one -- the Fed releases the following statement.

Chairman Alan Greenspan announced today that the Federal Reserve will increase slightly the degree of pressure on reserve positions. This action is expected to be associated with a small increase in short-term money interest rates.

Translation: A surprise intermeeting tightening. The funds rate moves to 3.75% from 3.50% and the discount rate remains at 3%.

Fed spokesman Joseph Coyne relates that Greenspan decided on his own to raise rates after a conference call with members of the Federal Open Market Committee.


The point of the first portion of the column is not to say that the most likely outcome of tomorrow's meeting is a half-point hike.

The point of the second portion is not to say that we should be looking for an intermeeting move.

The point of both, rather, is that we always ought to keep an open mind and be prepared for anything.

The chairman can do anything he wants anytime he likes.

He is never on the losing side of a policy vote.

Side Dish

The correct answer was

The Outfield

and a copy of

Devil in a Blue Dress

went out to reader Schreiber.

Today's question: Which former Housemartin released one great solo album in 1997?