It was steady as she goes today from FOMC. No surprise. The
economy is recovering and the deterioration of the job market is
ebbing, but my key benchmark policy indicators do not suggest it
is time to raise rates. In fact, two of the indicators -- capacity use
rate and my short term business credit supply / demand gauge
remain well in the red. The latter, the pressure gauge, can turn on a
dime, but for now it is still showing weakening demand.
My cyclical model for where the 91-day T-bill should be, based
on super long term historical data, puts the rate in a range of 1.0 -
1.5%. As we move into 2010, the model will lift the value to 1.5%.
So, The Fed's ZIRP is behind the curve and points to the Fed's
conviction that inflation poses no problem in the early stage of the
recovery. Just so you know how accomodative the Fed is being,
consider that the long term model for the bill rate with capacity use
"neutral" at 80% is 4.5% (US operating rate now just 71.3%).
You should remember that even though the CPI is 1.7% below its
mid-2008 historic peak (still deflation), we now have the CPI up
1.8% yr/yr, and the inflation thrust indicators remain in a positive
direction.
I have ended full text posting. Instead, I post investment and related notes in brief, cryptic form. The notes are not intended as advice, but are just notes to myself.
About Me
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!
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