(COMTEX) B: KEYWORDS: FED FINANCIAL ECONOMY CURRENCY STOCK Fed Leaves
B: KEYWORDS: FED FINANCIAL ECONOMY CURRENCY STOCK Fed Leaves Interest Rates
Unchanged, Part 2
The likelihood the Fed would not move today was
"about as close as you can get to a sure bet in monetary
policy" analysis, Tim O'Neill, chief economist at Bank
of Montreal in Toronto, said today.
With inflation at bay, uncertainty still
surrounding the outcome of Brazil's financial and
economic woes, and growing fears that the bursting of a
possible stock market bubble could substantially impact
consumer and business spending, most Fed watchers
doubted that any FOMC members would stridently call for
a rate hike at this time.
Recent comments by Fed Chairman Alan Greenspan,
who twice appeared before Senate panels last month, gave
no indications he was leaning toward any near-term change in policy.
Paul Kasriel, chief domestic economist at Northern
Trust in Chicago, said Fed policymakers were trapped.
Although there may be a desire among some FOMC members
to make a preemptive strike against possible inflation,
such a move was precluded by fear it could prompt a
sharp drop in the stock market.
If they wanted to do something, they couldn't do
it right now, Kasriel said. "The Fed's latitude to be
preemptive is curtailed."
Economists can justifiably quibble about the
calculation of the U.S. personal savings rate, which has
fallen to historically low levels in recent months,
Kasriel said. It's obvious, nevertheless, that the
savings rate has declined sharply over recent years as
the stock market has rallied, indicating that the robust
consumer and business spending that has fueled the U.S.
economy is increasingly vulnerable to any setbacks in
the equity market.
"The economy is on a knife-edge," Kasriel said.
"It has a lot of vulnerabilities, especially related to
the consumer sector." End of Part 2
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