This is one of those terrific little sections of the online WSJ which frequently gets overlooked. Its a shame it never makes it into the dead tree edition. (Consider it a public service I reproduce it here on their behalf).
The Federal Reserve’s decision to raise interest rates for a second time this year came as no surprise to economists, who widely expected a quarter-point increase. More important to economists and other Fed watchers is: What happens now? Will the Fed continue its “measured” pace of rate increases? Read reactions to the Fed’s decision and forecasts of what might lie ahead:
“[T]he language in the [Fed’s] official statement was somewhat more hawkish than we had anticipated. … there was no hint of any backing away from a steady stream of further rate hikes. In fact, the Fed explicitly indicated that the economy is ‘poised to resume a stronger pace of expansion going forward.’ It is highly unusual for the [Federal Open Market Committee] to include a forward-looking assessment of the economy’s prospects in the official statement. This is a clear indication that the Fed feels the recent incoming data represent a temporary soft patch.”
— David Greenlaw and Ted Wieseman, economists, Morgan Stanley
* * *
“[The Fed] decided to hike the interest rate based on the belief that the underlying strength of the economy is still healthy. … No hike would have sent a message that the economy is in much worse shape.” However, high oil prices are “a tax-sapping buying power of the economy, especially consumers. With rising oil prices, stagflation is not out of the question and the central bank is more likely to delay hiking the interest rate.”
— Sung Won Sohn, chief economic officer, Wells Fargo Bank
* * *
“Within its statement the Fed continues to paint an unwarranted rosy picture of the prospects for the U.S. economy … Yes, Greenspan, et al. are now correct that higher oil prices will hurt the U.S. economy … but they are wrong in the assertion that those prices are responsible for the current doldrums. … The ‘oil card’ allows the Fed to deflect attention from the real culprits, which are excessive debt and insufficient income growth. These problems, far from being transitory, are systemic, and will only worsen, especially as interest rates rise.”
— Peter D. Schiff. president, Euro Pacific Capital
* * *
“Once again, the committee said that higher inflation was partly due to unnamed ‘transitory factors.’ This gives them cover for not acting more aggressively. However, they better be right; if the presumed transitory factors turn out to be more permanent, the financial markets will quickly assume that the Fed is behind the inflation curve.”
— Steven Wood, chief economist, Insight Economics
* * *
“The Fed is not giving adequate weight to the waning effects of tax-cut stimulus, lack of foreign interest in U.S. equities markets, a weak stock market and a continued drag imposed by jobs lost to imports. All those things are slowing growth — in addition to energy prices — and these indicate that monetary policy is not as accommodative as the Fed has stated. If the Fed continues its plans to raise interest rates through next year, it risks pushing the economy into recession.”
— Peter Morici, economist, professor at the University of Maryland
* * *
“[I]t is realistic to assume that FOMC members will continue raising rates at each meeting for quite a while. Clearly, if the economy softens further, they could skip a meeting. But it would take consistently disappointing data to cause the Fed to pause.”
— Joel L. Naroff, president, Naroff Economic Advisors
Source:
Economists Consider The Fed’s Next Move
WSJ, August 10, 2004 4:32 p.m.
http://online.wsj.com/article/0,,SB109216517210187761,00.html
