Joined: 28 Dec 2005
|Posted: Sat Feb 20, 2016 6:55 pm Post subject: Fed & Asset Prices & Predictions
The Fed had less control over asset prices than you think. The FOMC raised the Fed Funds Rate from 1% in 2004 to 5 1/4% in 2006, and left it at 5 1/4% till September 2007.
When it began the easing cycle, oil prices continued to soar reaching $150 a barrel by mid-2008. The only significant mistake the FOMC made was not beginning to ease sooner, I.e. early 2007.
And, the Fed had less control over the housing and student loan booms. Moreover, given trade deficits reached $800 billion a year in the mid-2000s, it had no control “refunding” U.S. consumers through tax cuts.
We may have had a “soft landing” already (from a low altitude).
You’ve heard the story of the tortoise and the hare?
Maybe, it’ll be steady and slow growth for an extended period of time.
And, won’t stop before growth accelerates.
Yet, the Fed has been a reliable predictor of business cycles, and fulfiller of smoothing-out business cycles
For example, the Fed began lowering the Discount Rate in August ’07 and the Fed Funds Rate in September ’07 before the economy peaked in December ’07.
The Fed knew quantitative easing was needed and knew it had to wait, until recently, before raising the Fed Funds Rate.
The Fed has been ahead of the curve. Also, it predicts how much money creation or destruction is needed to spur, sustain, or slow growth.