Yesterday, General Glut, commenting on the OECD's recommendation that the United States tighten monetary policy but that Japan, Europe and Korea should not, says:
Does anybody else see the problem in this list of recommendations? First and foremost, it assumes a world of national economies... Events have demonstrated that the Federal Reserve not only has no control over long-term US interest rates...but precious little control over key short-term interest rates as well.
It is an interesting point. It is consistent with the point I made yesterday that some economic relationships have changed.
And yet, the conclusion that the Federal Reserve has no control over long-term interest rates could be premature because it has not raised the Federal funds rate significantly above the inflation rate yet.
Also yesterday, The Prudent Investor recommends watching M3 rather than the inflation rate to get "a better idea how much money is actually sloshing around in relation to the goods and services produced".
In yesterday's economic news, the Ifo index on German business confidence fell for a fourth straight month to 92.9, the lowest since August 2003, from 93.3 in April. In the US, the Commerce Department reported that durable goods orders rose 1.9 percent in April -- but fell 0.2 percent excluding transportation -- with orders for non-defense capital goods rising 3.8 percent, while sales of new homes rose 0.2 percent in April and the median price of a new home jumped 6.1 percent.
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