Wow! Look at the Markets after the Fed Announcement

[On the Road]

Looks like they're starting to take the prospect of rising interest rates seriously:

[expatriot]

1. It looks like a squeeze...

Inflation a problem but growth won't be able to endure in high interest rate territor.

[lagged_variable]

2. Not to be a downer, but...

1) Something like that happens every time Greenspan opens his mouth.

2) A 1-2% drop is hardly something anyone loses sleep over.

[On the Road]

3. The Suddenness and Change of Direction are What Struck Me

more than the percentage chage. It was a cliff-like drop.

There's often an afternoon change of trend after Fed testimony. Sometimes it's up. This time we'll see how far it goes.

[Tempest]

4. Here's what you're missing

Greenspan is supposed to instill confidence in the market.

Apparently he's instilling something much different.

[lagged_variable]

6. I'm not missing it

I don't think that's what the job of the Fed chairman is. It's to provide long-term stability and growth.

Aside perhaps from the "irrational exuberance" quote, perhaps the most famous thing Greenspan said (or was it Voulker?) was that his job is "to take away the punchbowl just as the party gets going".

Now, I'm hardly an expert in fiscal policy, and I suspect you're not either, but he and I knew damn well that as soon as the rate went up, this would happen. And as long as boards in this website and others keep popping up, pissing and moaning about increasing gas prices, they're going to keep increasing rates out of inflation fears.

The way people on this site talk, there should be no Federal Reserve (or at least Fed chairman) at all; there should just be a rate-cutting machine.

More constructively: what do you think he should be doing instead?

[Tempest]

7. Long-term stability and growth

Are factors in stock market performance.

At least you got one part right, you're not an expert in fiscal policy.

I'm not either, but I've studied it enough to know Greenspan has made a lot of mistakes and has been lucky on other times. Overall, his terms have not been a benefit to the U.S. economy.


>>More constructively: what do you think he should be doing instead?<<

I'll tell you what he shouldn't be doing.

He shouldn't be talking about SS reform in favor of private accounts.
He shouldn't have said deficits don't matter, only to change his mind when deficits did matter.
He shouldn't have given Bush a green light for three tax cuts that have now been shown to be a big mistake.

If you go back through my posts, you'll see I predicted pretty much everything that has happened since the 2000 dot com bomb.

I was talking about "irrational exuberance" long before Greenspan was.

[lagged_variable]

8. sigh...

An economy cannot be stable and grow in the long run? I don't understand what you're implying.

I have no doubt that you were quite right long ago about the nature of the country's economic path. But it's easier to cast dispersions than it is to create good policy. I'm sure he and I are both open to suggestions.

Regardless of what he's done in the past, today's move is nothing more than a by-the-book action that people have expected for three months.

[On the Road]

9. No, I'm Not Saying That Greenspan Made a Bad Move

This isn't a criticism of him. This move was needed, was virtually preannouced, and was widely expected. But when "bad news" is expected, the markets often go the other way -- dip on the rumor, bounce on the news.

What I believe the markets reacted to was that Greenspan not only signaled more interest rate hikes, which he had already been doing, but signaled an acceleration. There are articles on a 50-basis-point increase next time.

The markets have been shrugging off increases up to now. Maybe they'll shrug this off. But the reaction was very swift today. Maybe they're waking up.

[oecher3]

10. I think people are starting to sense

a change in momentum, ribofunk, you are right. The hike was needed, but the more interest will rise, you will get people to start connecting this to stagflation, or fear of mortgage interest rates rising, too and forcing that bubble to pop.
This increase so openly announced ahead of time was already absorbed in the stock prices, the .5% threat sounds more like it.
We have not yet seen enough economic recovery, at least not on the unemployment side and they raise interest rates more and more. It will force out the investement and makes further droping of unemployment (or hiring more people) unlikely!

And everybody, quit thinking of Greenspan as this independent Saint, ribofunk, you pointed out quite right how political this Trojan horse has become. He is an old republican that was first appointed by a republican and only kept by Clinton!

[Tempest]

5. Market down more than 100 points since Fed raised rates

So much for being a stabilizing force in the economy.

Greenspan has done so much damage to the economy, it'll take quite a few more rate hikes before any kind of sanity returns.