Wednesday, August 18, 2004

Some proof that Mr. Greenspan is showing favoritism towards Bush (versus Clinton).

Stephen Roach, chief economist at Morgan Stanley, wrote the following:

Its (The Fed's) August 10 policy statement contained a very explicit forecast of better times ahead. Despite recent energy-related weakness, the FOMC maintained that “"(t)he economy nevertheless appears poised to resume a stronger pace of expansion going forward.”" It is very rare for America'’s normally reticent monetary authorities to make such an explicit forecast of the future. Just out of curiosity, we combed the archives back to 1994 (when the Fed first began to release such policy statements) and came up with only one earlier instance when the FOMC was equally explicit in articulating a forecast. It was in June 2002, when America’s post-bubble recovery was flagging once again. The Fed'’s press release after the June 26 meeting stated very clearly that “"(t)he Committee expects the rate of increase of final demand to pick up over coming quarters.”" Unfortunately, that was not one of the Fed’'s better calls. Final demand growth averaged an anemic 1.3% (annualized) in the second half of 2002, and a year later the federal funds rate had been lowered from 1.75% to 1.0%. Oops.

I've noticed and written about this trend before -- it's disturbing. The Fed is supposed to be a politically-neutral body and yet indications point otherwise. Don't forget, Greenspan is a longtime Republican.

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