In the hope of not sounding too against-the-grain of conventional thought, here are my top five reasons why Greenspan will raise interest rates again this December:
— If Greenspan doesn’t raise rates, he’ll be admitting the U.S. economy is sluggish. This is something he wants to avoid at all costs.
— Higher interest rates have not stopped the stock market from moving higher. Hence, if higher interest rates are not affecting consumer confidence in the stock market, all the better.
— Higher interest rates have not halted property prices from rising. Greenspan and company want inflation… and higher house prices are inflationary. If Greenspan can continue to raise interest rates without putting a big dent into the housing market, all the better again.
— The American dollar is in a freefall against other world currencies. But Greenspan doesn’t want our currency to collapse because that would be a catastrophe. If our dollar did crash, who would finance our debt? Higher domestic interest rates offer some support to our weak dollar and make our government debt securities more attractive to foreigners.
And the number one reason Greenspan will raise rates again:
— Greenspan will raise rates because the higher he raises them, the more he can drop them when the economy gets really weak.
When interest rates were at a 46-year low, Greenspan had basically used the majority of his available ammunition to make money easy and get the economy moving. By pushing the Federal Funds Rate higher, Greenspan is effectively loading his gun again.
With most economists calling for a Federal Funds Rates of 3% by the end of 2006 (currently 2%), Greenspan will have the room to lower rates again if the economy gets choppy. He’ll have the maneuverability to lower rates so consumers can see “the Fed come to the rescue again.”
There you have it. My five top reasons why Greenspan will raise rates again.