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No Reason For Bush Or Stocks To Sweat An Upturn In Rates.(ISSUES & INSIGHTS)(VIEWPOINT)
Byline: ALAN REYNOLDS
When Fed Chairman Alan Greenspan speaks, the market listens.
What it is listening for, as I explained before, is not his views on fiscal policy but some hint about how long the Fed will try to keep the fed funds rate at 1% -- a feat never before accomplished for even a single postwar year.
After the Fed's meeting in late January, a subtle shift away from talking about keeping rates down for "a considerable period" toward using the word "patient" had a surprisingly negative effect on stocks.
Greenspan's last two appearances before Congress, by contrast, were thought to signal an inclination to keep rates down for a considerable period.
The market's anxiety about the inevitable cyclical upturn of interest rates has little to do with economics. Investors know interest rates cannot remain this low forever and that they will rise only in a rising economy.
In early February, 91% of the blue chip forecasters thought the Fed would raise interest rates this year (and 9% were wrong). Most thought rates would start rising after the June 30 or Aug. 10 meetings.
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