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Author: throgsnk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 168  
Subject: The Fed will begin easing (that's right, easing) Date: 5/11/2000 2:04 PM
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While I watch CNBC's Kathleen Hayes trumpet the scenario (ad nauseum) that The Fed will tighten 50 basis points next week and 50 basis points in June and conclude that drop of .02 in the retail sales number is merely a temporary slowdown because people had to pay their income tax, I can't help but wonder how people like her get their jobs or, even more startling, how they keep them?

I have a different view of what The Fed will do and why as follows: I think that The Fed will raise rates next week - 25 basis points would make the most sense but I can see a 50 basis move and an indication to the markets that The Fed is going to cease raising rates. Why would I say that in light of all of the tons of evidence to the contrary according to CNBC? Here's why:

1st - The Euro is on its "arse". It is currently at 90 something (to the dollar) and if the tightening continues to the mid-70's. Europe, which is just coming out of a recession, has to be screaming at the U.S. not to kill their economy just when it's recovering. There is no way that Europe is going to sit by and watch the Euro sink lower and lower against the dollar and not raise "merry ol hell" with us;

2nd - Although the economic "pundits" marched on day in and day out on CNBC never mention this fact, there is a LAG PERIOD between the Fed's action and the affect it has on the various indices. Depending on which index you look at the LAG PERIOD is 6 to 8 months. So, while Kathleen Hayes and her band of bears keep up the incessent drum-beating that the economy is "still too hot", the fact is that the economy is reflecting the tightening by the Fed at the end of last year. At that time, the optimism was very high - that has been replaced by pessimissum (due to the on-going clarion call of higher interest rates by the media and its cronies);

3rd - This is an Election year and the democrats have been touting the results of their economic programs as creating the "wealth effect". They do not want to see that end and neither does Greenspan want to be seen as the impetus to put this economy into a recession (which with a 100 basis point hike would do imo).

I personally feel for these reasons (and some others), the Fed will carefully structure their future (near-term) actions to reassure Europe (and Japan) that we are not going to tank their recoveries.

That's the way I see it - Easing is in order; not Tightening.
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