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To: Murrey Walker who wrote (55416)	12/21/1999 11:05:00 AM
From: T L Comiskey	Read Replies (1) \| Respond to of 152472

The Associated Press W A S H I N G T O N, Dec. 21 ? The Federal Reserve, which has pushed up borrowing costs for millions of Americans three times in six months, is expected to leave rates unchanged today when Fed policy-makers hold their last meeting of the year. But private economists warn: Watch out for next year, when the central bank could push rates up as many as three more times to slow a sizzling economy that has the Fed worried about pending inflation problems. ?With economic growth so strong, there seem to be plenty of risks related to higher inflation,? said Ken Mayland, economist at KeyCorp in Cleveland. ?I think we will see several more rate hikes next year.? Worries about interest rate increases next year took a toll on Wall Street as the Dow Jones industrial average lost 113.16 points Monday and nervous bond investors pushed the yield on Treasury?s bellwether 30-year bond to 6.43 percent, the highest level in more than two years. Jobless Rate Hits 30-Year Low The Federal Open Market Committee, made up of Fed board members in Washington and the presidents of the Fed?s 12 regional banks, was meeting privately today to review interest rate policy. Financial markets eagerly awaited a midafternoon announcement of their decision. The Fed started raising federal funds rates on June 30 and followed with two more quarter-point increases on Aug. 24 and Nov. 16. That left the funds rate, the interest that banks charge each other, at 5.5 percent. Commercial banks matched their higher costs of borrowing by increasing prime rates, the benchmark for millions of consumer and business loans, by a similar 0.75 percentage point, which pushed the prime in November to 8.5 percent, its highest level in two years. So far tapping the interest rate brakes has done little to slow the economy, which shot up at a 5.5 percent rate in the fall, far above the 3 percent pace most analysts believe the Fed considers safe to ensure that tight labor markets don?t spark inflationary wage demands. The unemployment rate currently is at a 30-year low, 4.1 percent. While these factors normally would prompt a further boost in interest rates this week, analysts believe the Fed will prefer to remain on the sidelines because of uncertainty surrounding the Year 2000 date changeover. Preparing for Y2K Cash Rush Federal Reserve Chairman Alan Greenspan has expressed confidence that the banking system will handle the date change without computer failures. But the Fed also has made sure the financial system has plenty of currency reserves to meet unexpected demand for cash from depositors worried that bank computer glitches would prevent access to their money. A boost in interest rates this close to the Y2K switchover would add an element of uncertainty that analysts believe the Fed wants to avoid. ?I don?t think the Fed thinks Y2K will cause big problems for the economy, but there is a reluctance by the Fed to make any sudden moves right now,? said Paul Kasriel, economist at Northern Trust in Chicago. While predicting that the Fed won?t touch rates today, Kasriel said he looks for the Fed?s policy directive, a signal of future actions, to be switched from neutral, where it was put after last month?s rate increase, back to a directive leaning toward future credit tightening. The Fed?s first interest rate meetings of 2000 will be Feb. 1-2, followed by meetings March 21, May 16 and June 27-28. Planning for a ?Soft Landing? David Jones, chief economist at Aubrey G. Lanston in New York, said he expects three more quarter-point rate increases next year, probably at the February, March and June meetings. ?The economy has an incredible amount of momentum going into the new year, much stronger than the Fed anticipated,? Jones said. ?It may not be as easy for the Fed to get a soft landing next year as they had thought.? The central bank?s aim in boosting interest rates is to slow business and consumer borrowing, thereby slowing overall economic activity and keeping inflation under control. Economists call this a ?soft landing? as opposed to a ?hard landing,? in which the Fed raises interest rates so much to fight inflation that the economy is pushed into recession. Many analysts believe that one of the Fed?s biggest fears at present is that the stock market is overvalued, driven to dizzying heights by investors? bidding up the price of Internet companies. Jones said this speculative bubble could harm the real economy if stock prices suddenly fall and consumers, seeing the paper wealth disappear, cut back sharply on purchases. ?We have a red-hot economy going into the new year,? Jones said, ?but we could be headed for a boom-bust situation.?