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To: jhg_in_kc who wrote (48419)	11/8/1999 12:42:00 AM
From: T L Comiskey	Respond to of 152472

Fed Ponders Rates, Reputation At Stake WASHINGTON (Reuters) - With little more than a week to go until a key meeting on interest rates, top U.S. Federal Reserve officials have yet to make up their minds whether or not the world's biggest economy needs a tap on the brakes. And as policymakers privately profess that they are profoundly puzzled as to what they should do, the occasion is shaping up as one of the toughest tests of Fed Chairman Alan Greenspan's leadership in recent years. A cacophony of public comments over the past few weeks has highlighted the indecisiveness at the Fed's most senior level and given global financial markets little guidance as to what they should expect from the keenly-awaited Nov. 16 meeting. Not surprisingly, Fed watchers on Wall Street are split on whether the powerful central bank will nudge up interest rates for a third and last time this year to make sure the more than eight-year old U.S. expansion stays on an even keel. The absence of clear guidance from those whose opinion really counts the 10 voting members of the rate-setting Federal Open Market Committee has frustrated investors who over recent years have become accustomed to the Fed signaling its intentions well ahead to avoid outsized market reactions. But with the Fed's hard-won inflation-fighting reputation at stake, it would be too early to rule out another rate rise this month which would help to make credit more expensive and thus slow economic growth to a more manageable rate. THE MEAN U.S. JOBS MACHINE Take last week's release of October unemployment data: The U.S. economy turned out yet another 310,000 jobs outside the farm sector that month, bringing the unemployment rate to 4.1 percent, a level not seen in more than a generation. While there were few troubling signs of wage inflation in that report, Greenspan and his colleagues have long worried that the economy will eventually run out of workers, at which point inflation would inevitably pick up. ``The Fed's biggest concern is the availability of labor, and there hasn't been any measurable progress on that front,' political analysis firm ISI said in a report last week. Fed officials say inflation has so far been held down in part by the weakness of foreign economies, caused by two years of global financial turmoil that has kept a lid on import and commodity prices. At home, strong growth in productivity has allowed the economy to grow faster than was previously thought possible, they say. But there are important caveats. Fed governor Edward Kelley told Reuters in an interview Friday there was a risk of a rebound in commodity prices and pointed to a pick-up in growth in many foreign economies, such as those in Asia and Europe. ``The U.S. economy is operating very fully and if the rest of the world comes back, then I would imagine that would tend to increase our exports, which will put further pressure on an already full economy,' he said. The always even-handed Greenspan himself warned last month that productivity cannot continue to grow indefinitely. ``At some point (productivity growth) must, at least, plateau,' he said. ``Should, at that point, labor market tightness result in faster growth of nominal wages, there would be no offset from accelerating productivity.' That the economy needs to slow from its current pace it grew by an astounding 4.8 percent in the third quarter is seen as a given inside the Fed. But while there are signs that two recent rate rises have already taken steam off some sectors such as the housing market, many Fed officials privately wonder whether this will be enough to tame inflation going forward. NEXT YEAR MAY BE TOO LATE Those policymakers are likely to push for a rate rise for another reason. If the Fed does not act now, it is likely to put off any move until early next year to avoid adding to any uncertainty that might be caused by the Year 2000 computer problem. By that time, it might have fallen behind the curve. That is a risk Greenspan is unlikely to take. He signaled as much in his most recent speech: ``(The) scenario of rising cost and price pressure is one policymakers have dealt with before, and the actions called for, while by no means easy, are readily discernible.' He now faces the tough task to build what many economists think is a crucial ingredient of modern-day central banking: consensus among the top decision makers. In a world where every Fed official's public utterances are immediately dissected for any hints on their rate outlook, any indication of discontent could easily be read as a sign of weakness and hurt the Fed's tough anti-inflation reputation. But the time for Greenspan and his colleagues to make their intentions clear is running out fast. ``If there is a hike, without any signals, the carnage (in financial markets) could be ugly,' said Joel Naroff of Naroff Economic Advisors in Holland, Pa.. ``I still believe it will be a close call and I do not rule out a hike on the 16th.'