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To: Defrocked who wrote (65778)	10/1/1999 3:13:00 PM
From: accountclosed	Respond to of 86076

POLL -- Wall Street sees Fed on hold next week By Marjorie Olster NEW YORK, Oct 1 (Reuters) - Leading Wall Street firms almost unanimously expect the Federal Reserve to keep their hands off the levers of monetary policy at the next rate setting meeting on Tuesday, according to a new Reuters poll. Only one of 30 primary dealers of U.S. government securities predicted the Federal Open Market Committee (FOMC) would raise interest rates on Oct. 5, while 29 see no change. Thirteen firms expect the Fed to shift to a ''tightening bias'' next week that would indicate they are leaning towards a rate hike as their next move. Only seven firms predicted the FOMC would raise rates at the November 16 meeting. The lack of any significant wage or consumer price inflation despite continued strong domestic demand and tight labor markets argues for no change in borrowing costs, economists said. They added the recent sell-off in stocks will give the Fed some comfort, helping to ease worries that growing wealth from assets is fueling an unsustainable pace of consumer spending. ''They are getting two things they want to see,'' said Lehman Brothers economist Ethan Harris. ''The drop in core inflation is a big surprise for the Fed. They have to be very comfortable with that.'' The other positive development, from the Fed's point of view, is the rise in bond yields and mortgage rates and the more subdued stock market, Harris added. Wall Street firms are also taking their cue from recent statements by Fed officials that contained few of the kinds of clues of an impending policy change that preceded rate hikes at the June and August meetings. Fed Chairman Alan Greenspan has steered clear of any major pronouncements on the state of the U.S. economy since his trip to Jackson Hole, Wyoming in late August where he said central bankers must pay more attention to asset prices when setting interest rates. Anthony Karydakis, senior financial economist at Banc One Capital Markets, said the Fed had carefully hinted ahead of rate changes in June and August to prepare financial markets, and the absence of signals lately points to steady policy. A number of comments by regional Fed bank presidents in the past few weeks have reinforced expectations for no move next week. New York Fed President William McDonough, a voting member of the FOMC, said on Friday he believes the U.S. economy can grow at about a 4.0 percent pace right now without generating inflation. McDonough said U.S. productivity had been rising at nearly 3.0 percent over the past four quarters while the labor force had been growing about 1.0 percent per year. The Fed sees the sustainable or non-inflationary rate of gross domestic product growth as the sum of those two numbers. ''As of this moment, it would appear that you can grow the American economy at essentially 4.0 percent per year and have that growth be sustainable,'' McDonough said. San Francisco Fed President Robert Parry, who does not vote this year, said earlier this week the Fed's econometric models used to forecast inflation had not been working very well in recent years and this could make preemptive strikes on inflation risky. HSBC Securities was the only primary dealer to predict a rate hike on Tuesday. HSBC economist Ian Morris said it's a very close call but he thinks the Fed will want to further restrain robust domestic demand because it is driving strong imports and swelling the U.S. trade deficits to record levels. Morris said strength in Friday's data on consumer spending and the National Association of Purchasing Management (NAPM) survey solidified his call for a rate hike. Spending surged at a 0.9 percent annual rate in August, more than double July's 0.4 percent gain. NAPM rose to 57.8 in September from 54.2 in August and the prices paid component jumped to 67.6 from 59.8. Economists said they do not expect any impact on Fed policy from Y2K computer problems in the coming months. However, they noted the Fed will be cautiously watching financial markets for any signs of disruptions due to excessive liquidity demands from corporations or individuals. biz.yahoo.com