MELBOURNE, Fla. -- Hey. Go ahead and print this now.
Lotsa folks have been asking for the first table below (does no one care enough to just commit these things to memory already?). It shows how the 1994 tightening cycle played out. It consisted of seven hikes (including one intermeeting move) that doubled the funds rate to 6.0% from 3.0%.
The second table shows how the current cycle's gone so far (and you can fill in the blanks as we go). It has consisted of five hikes, although your narrator views the first three (and you're free to disagree) as nothing more than take-backs of the September-October-November 1998 easings. The funds rate now sits at 6.0% -- precisely where it was sitting at the conclusion of the last tightening cycle more than five years ago, when domestic demand was growing at a pace two percentage points slower than it is now.
As to Tuesday? Look for a half-point hike in the funds rate and the statement below (and recall that policymakers
announced earlier this year how such things would be worded).
Against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the Committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.
Why? That's the only reasonable option the central bank has.
A quarter-point hike (even alongside the mean statement above) will have the dumb-ass stock market thinking that the cycle's about over -- and that will ease a key component of the very financial conditions the
trying to tighten. A weak move will also have the brainy bondfolk (who very much want a half-point hike) thinking that the Fed's behind the curve -- and policymakers cannot risk losing any credibility with the market that matters.
A half-point hike with a kinder statement, meantime -- risks are either "balanced with respect to prospects for both goals" or "weighted mainly toward conditions that may generate economic weakness" -- stands to produce similarly counterproductive results.
The Salomon Smith Barney economists describe the landscape this way:
The evidence of dwindling economic slack, surprising acceleration in first-quarter demand growth, and more tangible signs that wage and price pressures are resurfacing should convince officials to opt for a more aggressive tack. Even with the huge lift in productivity, recent data have hinted strongly that the pace of activity is unsustainable.
Your correspondent couldn't agree more. If the Committee was
concerned that "increases in demand will continue to exceed the growth in potential supply" two months ago, it's even more concerned now.
Tuesday's a no-brainer.