WSJ: Fed Leaning Toward Shift in Outlook
NEW YORK (Reuters) - The Federal Reserve is ``leaning heavily'' toward softening its stance that inflation poses the greatest risk to the economy, warning that a sharp slowdown in growth poses an equal danger, The Wall Street Journal reported on Monday.
``The new view would likely declare that the danger of a sharp slowdown is at least as great as the risk of rising inflation -- the first time officials have made such an assessment since early 1999, when fears of the Asia crisis were still lingering,'' the newspaper reported.
Wall Street analysts think the policy stance will shift when the Fed's rate-setting Federal Open Market Committee meets on Dec. 19 for its final meeting of 2000.
The Fed, which raised interest rates six times from June 1999 to May 2000 to keep a booming economy from fueling inflation, is not expected to cut rates in December.
But many Wall Street strategists are upping the odds of a rate cut early next year, and U.S. bond markets have priced in several rate cuts next year.
The Journal said, however, that the Fed could give financial markets a Christmas surprise, slashing rates if two key economic reports -- Friday's employment report and next week's retail sales data -- come in weaker than expectations.
The world's largest economy has slowed from a rapid 5.6 percent growth pace in the second quarter to 2.4 percent in the third quarter, and many economists are revising down their forecasts for growth through the end of the year.
Fed Governor Edward Gramlich said on Friday that data released since the Fed last held rates steady in November have confirmed the U.S. economy is slowing and that credit conditions have tightened.
While few are predicting a recession is brewing at this stage, markets have begun to raise the odds of a contraction.
But the Journal quoted Fed Governor Edward Kelley as being skeptical the economy is careening toward a recession.
``I believe there's still a considerable amount of momentum in this economy, even though it's obviously slowing,'' Kelley said in an interview with the newspaper.
``Other than the fact that the stock market has been off considerably, I don't see many things in deep trouble,'' Kelley said.
Financial markets will closely watch a speech by Fed Chairman Alan Greenspan in New York on Tuesday for the latest clues in the central bank's thinking. |
