Fed to slow pace of rate cuts--Wayne Angell (bwaha)
NEW YORK, May 22 (Reuters) - The Federal Reserve, which has slashed interest rates deeply this year to stimulate U.S. economic growth and ward off a recession, will probably shift to less aggressive rate cuts in the months ahead, Bear Stearns' chief economist Wayne Angell said.
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Angell, a former Fed governor, added that should the Fed extend its aggressive rate-cutting campaign -- which has shaved 2.5 percentage points off short-term interest rates in less than five months in half-point increments -- the central bank risked stoking future inflationary pressures.
``We no longer think it appropriate that the Fed continue along the path of aggressive rate reductions,'' Angell wrote in a research note to clients released late last Friday and obtained by Reuters on Tuesday.
``If the Fed focuses on growth rather than future price stability, it would likely prove to be counterproductive for the markets because it would raise expectations of inflation,'' Angell wrote.
Citing a rise in indicators the firm uses to measure monetary conditions, including core commodity prices, gold prices and the implied inflation rate from U.S. Treasury Inflation-Protected Securities, Angell said that after last Tuesday's half-point rate cut, ``monetary policy might now be erring slightly on the side of ease.''
Angell drew fire from market participants and former Fed colleagues earlier this year for going on CNBC television with forecasts of a half-point rate cut between the Fed's January and March meetings that did not materialize.
His comments jolted flagging stock markets, which were scrambling for positive news to grasp amid heavy selling pressure and a barrage of dismal economic reports and bleak earnings reports from U.S. companies.
``We might now be entering a phase where the Fed will move more slowly in lowering rates (and further intermeeting rate cuts appear to be out of the question) and we now look for a rate cut of only 25 basis points on June 27 and another quarter-point cut in August,'' Angell said.
In a Reuters survey conducted last Tuesday, after the Fed's latest rate cut, Bear Stearns forecast a 50 basis point rate cut at the Fed's June 26-27 policy-setting meeting and another afterward, which would have brought the Fed's benchmark federal funds target interest rate to 3.0 percent by year end.
The federal funds target rate is currently 4.0 percent, a seven-year low. |
