Jewish World Review July 2, 2004 / 13 Tamuz, 5764
NOT SO FAST, AL!
I remember when my wife gave birth to our daughter; she had no sooner popped out a kid than she was popped out of the hospital. There was only one problem: She wasn't ready to be popped out of anywhere! Battling a stubbornly high fever and a very tough case of preeclampsia, a toxic condition developing late in her pregnancy, she had to be re-admitted only a day later, and stayed a week more.
I'm not hear to drudge up old Cavuto family medical stories (you should see the slides, by the way), but to make a point about and to Alan Greenspan (stay with me here, it gets good).
I'm afraid Alan's going to make the same mistake that hospital did telling the patient all is good when it's not good. Sometimes, as with my wife, the patient needs more care. I have trouble with doctors who don't have patience for their patients. I have just as many concerns about this doctor, Al.
Here's my worry not that Al and his pals raised interest rates. Everyone expected that, after all. It's just that I'm afraid they're going to overdo it. And they do have a history of overdoing it. Now I know the economy is stronger and things are getting better, but we're not strong enough, nor are the numbers encouraging enough for us to forget this basic fact the patient isn't fully recovered yet.
The latest proof of that came in the final read on first-quarter GDP. At first, everyone was breaking out the bubbly on initial word it was growing at a sizzling annualized rate of 4.4 percent. It turns out now it's more like 3.9 percent. That's not bad. But that's not super great, either.
Ditto retail sales. They're picking up, but not enough to get some pretty big players like General Motors and Wal-Mart Stores, and even Target, to say they likely slowed considerably in June.
My point is not to bash this economy far from it. I'm genuinely encouraged by all I see. It's just that I want to see this recovery continue, and I fear the Federal Reserve will botch it by hiking rates too much too soon.
Trust me, I know the Fed worries about inflation. But realistically, how does raising short-term interest rates affect the price of gasoline? Not much. Gas, and demand for it, have nothing to do with Al and his pals, and everything to do with supply and demand these days, limited supply and a lot of demand.
The Fed has every reason to worry about certain commodities going through the roof. But hiking interest rates won't send the prices of tin or zinc or gold or cotton southward. They'll do their own thing regardless of what the Fed's doing with its rate thing.
No, my bigger worry is that this economy, which has come so far, so fast, risks giving up those gains if the Fed gets too aggressive on interest rates. We know that auto sales are picking up, but we know as well how vulnerable they are to a sudden shift in borrowing costs. We know housing has held strong, but we know too the risks to that strength if both short and long-term rates get out of control.
I guess what I'm calling for is a measured response, and not forgetting that the patient is recovering but not entirely out of the woods. Manufacturing still has its problems in parts of this country. So, too, the service sector. Both are picking up, but not across the board, and certainly not enough to withstand a huge dose of rate increases.
I'm the type of guy who likes to see the patient up and walking around before I kick her out the door of the hospital. I know that in these days of cost-containment and stubbornly cheap insurance companies, that's not the rule, but in the bigger economy in which we all live, it better not be the exception. We could all get sick as a result. Then what would Dr. Al do?
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Neil Cavuto is managing editor of Business News at FOX News
Channel. He is also the host of "Your World with Neil Cavuto" and "Cavuto on
Business." He's the author of "More Than Money : True Stories of People Who Learned Life's Ultimate Lesson". (Click HERE to purchase. Sales help fund JWR.) Comment by clicking here.
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© 2003, Neil Cavuto