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To: Les H who wrote (38847)	2/2/2000 6:41:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

ANALYSTS SEE FED TIGHTENING CAUTIOUSLY BUT DIFFER ON HOW MUCH 16:05 EST 02/02 By Steven K. Beckner Market News International - In raising short-term interest rates Wednesday, the Federal Reserve convinced Fed watchers of its cautious approach to monetary tightening but left them divided on how much more it will be raising rates. In the wake of a 25 basis point increase in the federal funds and discount rates, analysts' forecasts of further rate hikes ranged from another 25 to another 75 basis points. Much as expected, the Fed's policymaking Federal Open Market Committee concluded two days of meetings by voting to raise the funds rate from 5.5% to 5.75% and the discount rate from 5% to 5.25%. And it tilted toward further rate hikes. Using its new disclosure lexicon, the FOMC announced, "Against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future." As the Fed made clear when it announced its new disclosure procedures, "the foreseeable future" is meant to imply a flexible and indefinite time period -- not the inter-meeting period or the next meeting, which in this case is March 21. The Fed statement further declared, "The Committee remains concerned that over time increases in demand will continue to exceed the growth in potential supply, even after taking account of the pronounced rise in productivity growth. Such trends could foster inflationary imbalances that would undermine the economy's record economic expansion." Conspicuously absent from the Fed statement was any mention of tight labor market conditions or wage pressures, even though recent data have shown both and even though the Fed has made mention of those concerns in the past. The announcement was generally read as a cautious sounding statement of the Fed's mood that indicated a continued incremental approach to tightening. And since last year's 75 basis points of rate hikes merely reversed an equal amount of cuts the previous year, many analysts, as well as officials, believe that the Fed is only now beginning to tighten. How much more will be needed was a matter of dispute. Former Fed Governor Wayne Angell said the FOMC statement "doesn't put them on the hook to tighten on March 21, but I believe they will." However, he said he expects "only one more" 25 basis point rate hike and "ideally they will get where they need to be at the March meeting." "Most likely 6% will be the top of the funds rate this year," Angell said. Had Fed Chairman Alan Greenspan felt he needed to get the funds rate to 6.25%, Angell reasoned that he would have done 50 basis points at Wednesday's meeting and another 25 in March, because "the Fed really prefers not to do any heavy lifting in an election year." What's more, he predicted that by the time of the May meeting, the price indexes are apt to show moderation. Angell, now chief economist for Bear Stearns, further said that, having gone through the crash of 1987, Greenspan wants to be "very careful" not to rock financial markets. He said it was important to the market's reaction to the rate hikes that they were "already in the market." Mickey Levy, chief financial economist for the Bank of America, said he expects the Fed to tighten "at least 25 and maybe 50" basis points more, beginning at the March FOMC meeting. Levy applauded the Fed rate announcement for emphasizing excess demand and not the tightness of labor markets. He said it "suggests that as long as demand remains so strong the Fed will be tightening. It suggests a couple of more moves." Excess demand will only be slowed if the Fed slows rapid money growth, he said. Levy said the Fed was "responsible" in the size of its rate hikes and in its tilt toward further tightening, noting the calm reaction of financial markets. John Youngdahl, senior money market economist at Goldman-Sachs, said he expects the Fed to push the funds rate to 6.25% "by late summer," but said that may not be the last tightening for the cycle. Youngdahl said he was struck by the "relatively mild tone" of the Fed rate hike announcement and by the lack of mention of labor markets. He said it indicates that the Fed is in "a relatively patient frame of mind" and that it was not jolted from its "moderate" approach by the recent GDP and ECI reports. Diane Swonk, chief economist for BancOne, agreed the Fed will continue in a cautious vein, but she anticipated the funds rate will need to be raised to 6.5% by year-end. She said the Fed will get there in three more quarter-point moves. "There's still no urgency to tighten," Swonk said, adding that the Fed's message Wednesday was that it will "handle this gradually."