When Alan Greenspan discovered the Fountain of Youth, he proclaimed that thanks to an extraordinary surge in technological progress and strong productivity growth he had already achieved perpetual youth, as evidenced by his youthful economic insights, and he also noted that the economy was forever expanding, so he drank the water from the fountain hoping it would serve to perpetuate another aspect of mortal existence, and after imbibing its refreshing elixir, he exclaimed triumphantly that he had finally discovered the fountain of perpetual money growth with no inflation.

With the possibility of reaching the first anniversary of the Fed Funds rate at 1.00 percent this June, we do not expect the FOMC to raise the Funds rate at the March 16 meeting, which is still within the range of a "considerable" period.

In his February 11 Testimony before the Senate Committee on Banking, Mr. Greenspan confirmed the Fed’s view that the economy was gathering steam with no inflationary pressures. Industrial production was up 2.4 percent in January of this year with respect to January 2003, the strongest showing since November 2000. In addition, he made reference to expected stronger job growth in the ensuing months. On the external front, he reiterated his view that the U.S. current account deficit was irrelevant to the economy and that foreign investors will ensure its financing with only gradual declines in the value of the dollar. As we have stated in previous briefings, we differ on both of these issues: we think inflation will pick up during the next several months and that the dollar is vulnerable to a sudden downward jolt now that the U.S. has become a basket case deficit economy, and that election year politics could cloud the outlook.

Oil prices are heading up, with West-Texas crude averaging $34.27 per barrel in January, up from $28.29 last September. Consumer inflation expectations have been hovering at 2.7 percent. The cumulative depreciation of the dollar will also add to inflationary pressures. We think the (real as opposed to the core) CPI will end 2004 at about 3.0 percent, up from the current 2.4 percent rate.

In an effort to further crystalize his message that there is no inflation, Fed Chairman Greenspan questioned consumers’ rationality in opting for fixed rate mortgages. He scolded consumers for not taking out a variable rate mortgage, since they would have saved thousands on interest payments. This would be an interesting concept to apply to financial institutions, who have also failed to behave rationally by keeping their interest rate gap under a leash.