Tuesday, May 04, 2004

The consensus forecast is that High Priest Greenspan and his Magisterium will not raise interest rates today.
The economy is motoring ahead, although the labor market, while showing improvements, needs to catch up. That's why economists expect the Federal Reserve to hold short-term interest rates at ultra-low levels for a while longer. An announcement is expected this afternoon after the Federal Open Market Committee meeting.
Since the Bush administration has no jobs strategy for the country, it all falls on the shoulders of the Fed to stimulate job creation. But as we have seen these past three years, monetary policy is an extremely blunt hammer with which to pound jobs out of the economy. With some half the global economy tied to the US dollar either through pegs (e.g. China, Hong Kong) or dirty floating (e.g. Japan, Korea), the Fed is stimulating not just a US recovery but a global one. The 'leakage' of cheap US money into East Asia in particular is legendary. Thus it takes a hell of a lot of monetary stimulus to create a small amount of oomph in employment.

According to economists in the know, the US needs to add at least 150,000 jobs per month just to keep up with population growth. The consensus expectation for April job growth is a paltry 165,000. Even if Greenspan starts dropping money from helicopters, he's not going to create a jobs boom. When the April employment numbers come in at the end of the week, we'll discover that the G.W. Bush jobs recession is the longest in post-Great Depression American history and nowhere near being over.

But at least those ultra-low interest rates are fueling a nice housing and equity market bubble!


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