How easy is money? This was reported in this morning's Wall Street Journal:
The investing arms of Goldman Sachs Group Inc. and Morgan Stanley are quietly collaborating on a massive private-equity play for the oil-and-gas assets of utility company Dominion Resources Inc. -- a deal that could top out at $15 billion, people familiar with the matter said.When $15 billion and play are in the same sentance, money and credit aren't being rationed.
Back to Berry.
He sets the stage by writing:
A few weeks ago, many financial analysts were predicting that slowing growth would prompt the Fed to adopt more neutral language at the Jan. 30-31 meeting in preparation for reducing the target in March or May.
That prediction was a major misreading of Fed thinking.
I should say so. But the street savants are often wrong but never in doubt. So where does Goldman, the erstwhile private equity player, stand? Again, from the Berry article:
On the other hand, economists at Goldman Sachs Group Inc. haven't abandoned their forecast of 75 basis points of rate reductions in 2007, beginning by midyear.Perhaps their economists should have lunch with the private equity guys. Since investors risk the firm's capital, the proverbial money going where the mouth is, I side with the risk takers.
Here is the meat of the story, at least to me:
Their counterparts at Macroeconomic Advisers LLC, who don't expect any such slowing in job growth, said in their weekly forecast update on Jan. 19 that they ``expect the Federal Reserve to maintain the fed funds rate at 5.25 percent throughout 2007.'' . . . .
. . . . They went even further, adding: ``The next decision for the Fed will be whether to resume tightening or to remain on hold, given the economy's apparent resiliency and the upside inflation risks emanating from tight labor markets.''
That's not a decision that is going to be on the table next week, however.
A number of Fed officials have indicated in recent speeches that they are quite comfortable with the current 5.25 percent target . . . .
They become uncomfortable if the curve flattens enough such that the market prices in a tightening before the Fed does. This occurs if data begin to reveal what this blog has been saying -- too much money chasing too few opportunities. As long as the curve behaves, so too will the Fed.
In sum, the Fed now turns a bit from data dependancy to watching the watchers.