Greenspan's Rates of Wrath

The Fed jacks up borrowing costs, but the move is too much for Main Street and not enough for Wall Street

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The outlook could be darker by then, particularly if the Fed continues to heed the bond market and pushes rates still higher. According to David Blitzer, chief economist of Standard & Poors Corp., there have been nine U.S. recessions since World War II but only two soft landings. In effect, the odds are 9 to 2 against the Fed in 1995.

Attempts to fine-tune the economy have often misfired. President Jimmy Carter tried to fight double-digit inflation in 1980 by discouraging banks and retailers from making credit-card loans and by appealing to Americans to leave home without their plastic. The tactics worked so well that consumers stopped borrowing and sent the economy into a recession just as Carter sought re- election.

In the wake of the Feds decision last week, bond traders at Smith Barney were consumed by a day of more microeconomic moves as the phones came alive with buy and sell orders. Within minutes of the Fed's announcement, one trader ran up to chief bond manager Carballeira and roared, "I've got $20 million 3s offered at 4." He got the O.K. sign. "Joe, I have a customer for $50 million 5s at 3." "Those are done," said Carbelleira. "Joe, I got a customer for $10 million 3s at 5." "No more," said Carballeira, and then: "Hey, is everyone all right?" The traders were too busy making deals to answer.


CREDIT: WEFA, Federal Reserve

CAPTION: To curb INFLATION, the Federal Reserve has raised its target for the FEDERAL FUNDS RATE which in turn has an impact on other rates, such as those for MORTGAGES and TREASURY BONDS

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