Thursday, November 17, 2005

Merrill Thinks Monetary Policy is Already Neutral

That is, inflation isn't the threat that everyone is making it out to be and the real danger to the economy is policy overreaction.

11:42 (Dow Jones) "The key to next year's economic and financial market performance hinges upon the Fed not overreacting to the perceived inflation threat," Merrill Lynch says. "We do not share the view that policy is still accommodative." The firm's David Rosenberg says the tea leaves - from a flat yield curve to range-bound equities to a cooling housing market - spell out that the funds rate is already at neutral, but he's not sure the Fed sees it that way. "Not only has the Fed never ceased a tightening campaign with the funds rate at an 'accommodative' level, but it has never stopped at 'neutral' either." (PJV)


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