In addition, some of the big gains in industrial commodities have come from rising economic demands from China and therefore do not represent excess liquidity that might be turned into future inflation. Money supply has been moving erratically, but the Fed's balance sheet keeps expanding at a healthy 10 percent rate. All of this suggests that there is no need for pre-emptive restraining moves by the Fed. That seems to be the main point that Alan Greenspan wishes to communicate to financial markets and investors. At this stage, he is surely right.
So the central bank should keep it simple -- or as they say in management seminars: Keep it simple, stupid. The Fed does not need multiple risk assessments of numerous economic targets. All that went out with the demise of Soviet central planning.
If the Fed wants true glasnost in its public communications, it should release policy-committee minutes immediately after it meets. Or, the chairman should hold a news briefing and take questions from the media right after a policy meeting concludes.
Next year, the big surprise for both Fed officials and the public will be the durability of stronger economic growth. Keynesian demand-siders believe that the one-time effects of this year's tax cut are already wearing off. But supply-siders recognize that a permanent reduction of tax rates on business and investment will continue to provide capital-formation incentives -- investors will take more risks, and businesses will spend more on capital goods. Small businesses, meanwhile, will continue to benefit from lower personal income-tax rates.
Allowing people and companies to keep more of what they earn and invest will produce a stronger economic growth rate for the next several years (as powerful productivity gains generate higher profits and wages). Consumer confidence will strengthen, and job opportunities will broaden. The Fed's role in this scenario is to accommodate the rising prosperity tide by steadily providing liquidity, even as interest rates gradually adjust to more historically normal levels.
So long as the central bank keeps a sharp eye on forward-looking financial and commodity market-price indicators as they guide money creation, we should experience an inflation-free bull market economy for as far as the eye can see.