The loosening is the sharpest since the 1981-82 recession, and is a sharp contrast to the cautious easing during the Gulf War. Chairman Greenspan obviously feels that the FOMC was too cautious a decade ago, and wants to act quickly and firmly enough to prevent a recession this time. Fear of Inflation Bond yields have stopped responding to Fed rate cuts. The steepness seems to reflect expectations of stronger growth more than fear of inflation. The other indicators of inflation expectations remain calm.
Gold prices are stable, and the dollar has been rising against both the yen and the euro.
The price data also give little reason to expect higher inflation. Except for energy prices, there is little sign of inflation. Even the rise in the core rate seems mostly energy related. The core strips out the direct impact of energy prices, but the indirect impact, through transportation and other operating costs, should have raised the core rate by about half a percentage point, about what we have seen. The April rise showed two major accelerations in the core rate - tobacco and recreation, but these were balanced by a sharp drop in apparel prices.