I was just about convinced that there was no way FOMC was going to raise rates, then Greenspan says today in his prepared remarks that the FOMC stands ready to increase rates at a pace "that is likely to be measured". Likely??? That's an uncomfortable qualifier. It's kind of like someone saying that an employee is "generally" reliable.
So I'm wondering, does the increase in the money supply allow the fed to increase rates faster without risking the response that such a rise would usually entail. I'm hoping Larry and some of you other experienced people can help me understand this.
h

Howard,

The short answer to your question is yes. The tremendous expansion of the money supply has built up inflationary pressures. Therefore, it makes it easier to raise rates in such an environment. But just as a suggestion, don’t pay any attention at all to what Greenspan is saying. Pay attention to what the market is saying. The market is overwhelmingly expecting a 25 basis point hike in rates (see fed fund futures and intrade.com). So what would be a surprise? No change at all would be a huge surprise and a 50 basis point hike would be a big surprise. Therefore, the market will react to those two extremes. 25 basis points is already in the market.

By the way, out of curiosity, what had you convinced that the Fed was not going to raise rates?

Larry

Larry,
In the last few days I've heard people talking about the possibility of a .5% hike. The Fed seems so intent on inflating and keeping the market up, I guess I thought the best way to do that was to suprise and not cut.
h