Greenspan didn't hint at coordinated ease-analysts
By Isabelle Clary
NEW YORK, Sept 9 (Reuters) - Market players speculating about possible coordinated interest rate cuts involving the United States to
strengthen global financial markets may be reading too much into Federal Reserve Chairman Alan Greenspan's recent speech, Fed sources
and analysts said on Wednesday.
''The juxtaposition of the meeting last week with Japan's Finance Minister (Kiichi) Miyazawa and Japan's easing today make the market think coordinated easing is now
possible,'' said David Resler, managing director at Nomura Securities International, who noted such speculations were reinforced on Wednesday when Japan cut its overnight call
rate to a record low 0.25 percent.
''But all that Fed Chairman Alan Greenspan really said is that (Fed) people who had a sanguine view of the U.S. economy and concern over prospects of inflation don't think that
way anymore,'' Resler said, referring to Greenspan's speech at the University of California at Berkeley on Friday.
While Fed watchers agreed Greenspan signaled a tightening bias has been removed, they do not share the market's confidence that Greenspan hinted at a near-term cut in the
5.50-percent U.S. benchmark federal funds rate.
One rumor that helped fuel U.S. easing talk was that Greenspan altered his speech at the last minute to reflect some of the topics discussed with Miyazawa and U.S. Treasury
Secretary Robert Rubin on that same Friday -- a rumor that the Fed denied on Wednesday.
''The speech was put together the week before (the meeting with Miyazawa),'' Fed Board spokeswoman Lynn Fox told Reuters.
''They were not late additions,'' added Fox, who denied that references to financial markets or the United States not being ''an oasis'' in a troubled world were added at the last
minute to an already prepared speech on ''Is there a new economy?''
According to one source close to the Fed, the fourth paragraph in Greenspan's speech was added at the last minute to a prepared speech geared toward Berkeley's academic
audience.
The source said Greenspan's fourth-paragraph reference to the fact that ''by the time of the (Federal Open Market) Committee's (FOMC) August meeting, the risks had become
balanced,'' were not aimed at signaling an easing -- just a change in the Fed's appraisal of the U.S. balance of risks.
''Greenspan wanted to avoid the same kind of situation as after the March FOMC meeting,'' the source said, referring to the late April leak to the press of the introduction of a
tightening bias at the March 31 FOMC meeting. Such news was slated for official disclosure in May only.
The source stressed Greenspan wanted to be the one informing markets about changes in policy outlook which did not mean that an easing was around the corner.
The Fed had a tightening bias in place until its last policy meeting on August 18. The minutes of that meeting will be made public on October 1.
The FOMC had a tightening bias in place for most of a two-year-plus period since July 1996 but acted only once on it, hiking the funds rate by 25 basis points in March 1997.
The absence of a bias for a three-month period between late December 1997 and late March 1998 did not result in an easing.
A Fed source told Reuters last week the Fed will not change policy solely out of concern for international financial markets -- unless global turmoil result in U.S. business cycle
fluctuations.
''The Fed looks at the real side of the domestic economy first and foremost,'' the Fed source said.
While traders speculate global rate cuts may ease the pressure on vulnerable global financial markets, policy experts warn there is no silver bullet to solve serious woes.
Former Fed Chairman Paul Volcker who now heads his advisory firm said the effect of a U.S. rate cut ''would be mostly psychological'' in the difficult exercise of trying to
restorethe health of troubled markets and economies.
''It's a big difficult situation worldwide. The United States is in a more comfortable position. But this is a major problem for emerging countries, generally, and there are a lot of
questions as to the direction they'll take in the future,'' Volcker said.
''For a while, it's just going to be a struggle to maintain some kind of order and continuity toward a recovery,'' added Volcker, who pointed out that troubled economies, such as
Japan and many emerging market economies, have good long-term potentials.
''There is no magic solution to all of this,'' added Volcker who declined to comment on the odds of coordinated rate cuts or the U.S. policy outlook. |
