It’s now time to look at the economy after the first half of the year. The war, tax cuts and interest rate reductions are major factors influencing the health of the economy.
The good news is that the stock market has seen increases of more than 20 percent, its largest gains since 1999. The question remains, "Is this sustainable?" There is too much geopolitical risk and not enough confidence in investment for the long term to call this a bull market.
Interest Rate Cuts
Short-term interest rates are the lowest they have been in more than 45 years. Mr. Greenspan is attempting to lower rates to encourage consumption, which may lead to more confidence to make investments by our companies. Interest rate cuts are not the medicine for a sluggish economy.
Observation of the Consumer and Producer Price Index can provide a clue in measuring the possibility of deflation.
The monthly report on the Consumer Price Index finds it has been down two months in a row. One month can be an aberration. Two months in a row has not been seen in a number of years. If this index continues to decline over the summer, the Federal Reserve will be required to take drastic action in the fall.
The Producer Price Index is mirroring the Consumer Index. It’s also illustrating a decline. Again, manufacturers cannot increase prices to the consumers. You are noticing this in autos, computers, and airline tickets.
The question for the second half of the year will be whether the United States follows Japan and Germany, the second and third largest economies, into possible deflation.
Fourth of July
Corn knee high by the Fourth of July? Not in the Eastern part of the country! Many producers are just getting the corn in the ground because of so much wet weather. Little and poor quality hay with a poor corn crop does not bode well for livestock producers.