Wednesday, January 05, 2005

Article on RIGS in the Washington Post:


Money Quote: “Riggs officials think that without a settlement by the end of this month, PNC will probably pull out of the deal, sources said. Any fine imposed on Riggs would probably lead to a corresponding reduction in the price PNC has agreed to pay for the company.”

Why TC thinks the Fed is not Done...

As for those who think that the Fed is done, consider this: Whereas the Fed's rate hikes tend to engender a financial environment that slows economic growth, the Fed's most recent rate hikes have been cannibalized by market forces and have actually become more stimulative of late. Since the Fed began raising interest rates last June, all four of the transmission effects normally associated with the Fed's rate hikes are now working in the opposite direction of what has occurred historically:
· Stock prices are higher.
· The dollar is weaker.
· Market interest rates are lower.
· Credit spreads are tighter.
All of these conditions encourage economic growth. The lack of transmission effects therefore means that it is extremely likely that the Federal Reserve will have to raise interest rates at least several more times before it can consider its job done and larger interest rate increases are possible.

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