Good Bye Mr. Greenspan.

For the 13th consecutive FOMC meeting since mid-2004, the close ofthe policy-setting meeting featured a lift in the key FederalFunds rate. The cumulative increase over the past 17 months is now325 basis points (3.25%); the Fed Funds rate stands at 4.25%, thehighest level since 2001. Interestingly, we have reached a pointof symmetry of sorts: the Fed's last campaign of lowering ratessaw 13 downward (albeit larger) steps, taking the Fed Funds ratefrom 6.5% to 1% over a 30-month period. We've now retraced abouttwo-thirds of that decrease, and probably have a little more yetto endure.The Fed did make a meaningful change to its characterization ofthe likely course and level for interest rates. While again notingthat "some further measured policy firming is likely to be needed"to balance inflation and growth, the Fed no longer thinks that thecurrent level of interest rates is "accommodative" or providingadditional support to the economy. If it's no longeraccommodative, then policy must be closer to a non-stimulative"neutral" level, which suggests that the process of raisinginterest rates will soon come to a close -- happily, for holdersof short-term ARMs and equity lines of credit, the products mostprofoundly affected by the Fed's campaign. Currently, it isexpected that one or perhaps two more increases are due, startingwith the January 31 1 meeting, which will be Mr. Greenspan's last asChairman.Based upon recent data, it would appear that the economy has beendoing just fine even though monetary stimulation has been fading.Growth has been solid, price pressures have risen but seem to beleveling, and the economy has bested several significantchallenges this year. Data for November points to a resumption ofthe growth patterns prior to devastating hurricanes.Retail Sales for November rose a solid but unspectacular 0.3%, alittle below forecasts. "Core" retail sales, a figure whichexcludes sales of automobiles and gasoline, moved higher by 0.5%for the month. That sales pace seems strong enough to continue tokeep levels of unsold goods low for the month, as they were inOctober, where broad measures of stockpiled goods rose by 0.3%,but strong sales served to absorb all that increase and even more.Low levels of goods mean more orders, and more orders will keepfactories humming and imports flowing.
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