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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED
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To: Jim Willie CB who wrote (37077)5/21/2001 12:51:02 PM
From: stockman_scott  Read Replies (1) of 65232
 
Concern about Markets Complicates Fed Policy

Monday May 21, 12:19 pm Eastern Time

<<WASHINGTON (Reuters) - Worries over how financial markets may react to decisions by the Federal Reserve on short-term interest rates may render those decisions harder to make, Fed Governor Laurence Meyer said on Monday.

Meyer's comments, in a speech prepared for delivery to the National Association for Business Economics, come only days after the Fed's policy-setting panel revealed it considered cutting interest rates in April a week earlier than previously thought but held off over worries that such a move risked ``unpredictable reactions in financial markets.''

While not referring directly to that decision, Meyer noted the role market expectations can play in Fed policy-making.

``The only way to avoid surprises is, of course, always to deliver to the markets what they expect. And surprises are inevitable and desirable when the market gets it wrong,'' he said. ''But concerns about such surprises, especially at times when financial markets are skittish, may complicate the policy decision.''

Meyer said the Fed's decision to abandon the so-called policy ''bias'' statement released after its meetings in favor a more generic ``balance of risks'' statement was meant to deal with the problem posed by market expectations.

``While the latter obviously also had implications for future policy, the new approach might be viewed as a way to guide expectations while limiting the market's attaching the same degree of immediacy and certainty to expected future policy actions,'' he said.>>
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