Angell: Fed will reinflate
Former Fed governor says a rate cut could
come before next FOMC meeting
October 7, 1998: 9:14 p.m. E Greenspan:
outlook weaker -
Oct. 7, 1998
Fed chief defends
bailout - Oct. 1,
1998
Is even the Fed on
hold? - Sept. 29,
1998
Federal Reserve
Board
NEW YORK (CNNfn) - Former Federal Reserve
governor Wayne Angell said Wednesday he
believes the U.S. central bank will reinflate the
economy to stave off recession.
In an interview on CNN's "Moneyline News Hour
with Lou Dobbs", Angell, now the chief economist
at Bear Stearns, said the Fed could even move to
cut rates before the Nov. 17 meeting of its Open
Market Committee if current market turmoil fails to
subside.
Yet even barring a speedy market recovery,
Angell said, the perception of risk to the U.S.
economy will virtually compel the central bank to
cut rates further.
"Eventually, the Fed will reinflate and the next
recession will not come until we have an increase in
the rate of inflation and the Fed gets back to doing
what it always does to cause recessions," Angell
said. "Recessions always come when the Fed is
pushing rates up, not when the Fed is moving rates
down."
At its last meeting, on Sept. 29, the FOMC
reduced the federal funds rate by a quarter point,
the first downward revision since January 1996.
The cut disappointed some investors who had
been angling for a half-point reduction to help
innoculate American markets against global
economic contagion.
Angell also expressed concern about a
perception of risk in the U.S. market that market
strategists say could trigger a credit crunch which,
left unchecked, would percolate down through the
financial feeding chain.
"I've never seen a time when there's been such a
blow-up of the kind of risk to the U.S. economy,"
Angell said. "We've taken a 2 percent trade drag for
the first three quarters of 1998 and yet we're still
averaging a 3.25 percent growth rate for these first
three quarters."
In less risk-averse times, Angell said, "growth
would have been too strong for Alan Greenspan and
those people at the Fed and they would have been
raising rates."
Angell added that he believed the Fed has been
somewhat "handicapped in being more than
gradualist" due to the relative weakness of the
dollar.
"The weakness of the dollar subtracts from the
Fed's power," he said. "The German Deutschmark
rises in value and increases the Bundesbank's
power and makes it more important that we have a
decrease in rates in Germany and Europe."
At the same time, Angell asserted the Fed had
been successful in arresting the decline in gold
prices, "so we're not going to see a continuation of
the deflation which now is pretty well confined to
scrap steel prices."
Angell made his remarks just hours after J.P.
Morgan, the fourth-largest investment bank in the
United States, warned that the country is headed
for a recession in 1999.
The bank said growth would drop to zero in the
first quarter of 1999, and then shrink at a 2-percent
annual rate in the second quarter and a 1-percent
rate in the third quarter, before returning to positive
territory in the final three months of next year.
Angell said the soonest the central bank was
likely to move on a further reduction is "sometime
midway between the September (29) and Nov. 17
FOMC |
