Reply #28: Is the Fed succeeding? [View All]

http://money.cnn.com/2004/12/14/commentary/column_hays/hays/

Sure, it's a smooth move to higher rates, but the dollar and long-term interest remain questionable.
December 14, 2004: 8:29 AM EST

NEW YORK (CNN/Money) - If nothing else, give Alan Greenspan and his colleagues at the Federal Reserve credit for one thing: They have turned constant interest rate hikes into something that is nearly a non-event for the financial markets.

A quarter-point rate hike in the Fed's key short-term rate is universally expected, so much so that unless the Fed fails to hike the rate, or hikes it by twice that much, Wall Street will barely be able to stifle a yawn.

But is that really what the Fed wants?

Look at long-term interest rates. If the Fed wants to rein in the economy to prevent inflation from rising, it might be helped in this goal if long-term rates would rise along with its increases in short-term rates, but they have not. The U.S. government 10-year note yield is trading at 4.15%,and has held at the level for the months now, even as the Fed boosted the fed funds rate four times this year, from 1% to 2% -- and is on the verge of a move to 2.25%.

snip>

The Fed so far appears to have succeeded in making a transition to higher rates without unsettling a growing economy, or roiling global currency markets. But if they're hoping to move long-term rates higher or to put a floor under the dollar, their smooth, cautious policy may be falling short of the mark.