Word: gramley
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People like Lyle Gramley, a former Federal Reserve governor who is now chief economist for the Mortgage Bankers Association, praised the Fed chairman for his decisive actions. But critics like Paul Craig Roberts of Washington's Center for Strategic and International Studies charge that Greenspan also helped cause last week's market disaster. They note that back on Sept. 4, Greenspan's first important move as Fed chief was to push successfully for a hike in the bellwether discount rate, the interest that the Fed charges on funds lent to financial institutions, from...
...indeed it was. But for investors, any increase in interest rates makes stocks less attractive, since higher returns become available for bonds, Treasury bills and other fixed-income securities. During the two trading days after the Fed announced its decision, the Dow Jones industrial average dropped 54 points. Admits Gramley: "A common problem is the markets do not understand Alan Greenspan's statements. He needed to express ((the Fed's decision)) more clearly...
...shared by small investors who have poured money into bond mutual funds. At the end of March, those funds had assets of nearly $310 billion, up from $142 billion at the end of 1985. The mortgage market was also hard hit by the rise in interest rates. Says Lyle Gramley, chief economist of the Mortgage Bankers Association: "Some people called it orderly panic in the bond market. In the mortgage market, it was disorderly panic." In just two weeks in April the average rate on a 30- year fixed-rate mortgage rose from...
Economists generally believe the mortgage shudders are unlikely to become a long-term trend. Contends Lyle Gramley, chief economist for the Mortgage Bankers Association of America: "There is no reason for interest rates to continue going up. That would slow the economy so much that the run-up wouldn't be sustained." But the abrupt halt to the flow of ever cheaper mortgage money might handicap an otherwise healthy homebuilding industry. Last week the Commerce Department reported that housing starts during March fell to an annual rate of 1.77 million, a 3.2% drop from the previous month...
...departure of Gramley and Partee could possibly weaken the Federal Reserve's inflation-fighting resolve. The board during the past year has been divided into hawks, doves and owls. Gramley and Wallich were the hawks. They have been especially concerned about inflation and have occasionally voted for a more restrictive monetary policy than Volcker wanted. Martin, Seger and Rice have been doves, sometimes voting for faster money growth. Volcker and Partee were the owls in the center, favoring a moderate course. The appointment of Johnson and another Reagan loyalist might give the doves a stronger hand...