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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (1656)	5/19/2000 1:32:00 PM
From: John Pitera	Respond to of 33421

John Berry Speaks!! Wall Street Ponders Fed's Next Rate Move _____The Federal Reserve_____ By John M. Berry Washington Post Staff Writer Friday, May 19, 2000; Page E03 On the immediate heels of a half-percentage-point increase in the Federal Reserve's interest-rate target Tuesday, investors and Wall Street analysts are already debating what will happen at the central bank's next policymaking session June 27-28. Will Fed officials repeat the pattern of the second half of 1994, the last time there was a lengthy series of rate increases to slow economic growth and combat inflation? Then, they raised their rate target by half a point and then left rates unchanged at the following meeting. Alternatively, having now gotten the target up to 6.5 percent, might they go back to the pattern of more gradual quarter-point moves, which they made in five steps from last June through March. Or is their concern about inflation so great that they will move by another half-point at the next meeting? All three propositions are being argued on Wall Street. "Even though the market fully expected this week's half-point, no one is really sure they understand why the Fed moved away from its more gradualist approach," economist James Glassman of Chase Securities Inc. said yesterday. "The usual question is being asked: 'What does the Fed know that we don't?' "Some people are taking the half-point move as telling us something new is going on, namely that the Fed has a hidden agenda, that the Fed really is more concerned about inflation than was reflected in the words of the statement they issued Tuesday. But I disagree with that. "More likely, they were just being opportunistic this week, with the market expecting a half-point increase and just pushing in the direction the Fed wanted to go anyway." At the previous Fed meeting on March 21, when policymakers raised their target for overnight rates by a quarter-point, they expressed serious concern that consumer and business spending for goods and services was growing faster than the economy's capacity to produce them, according to minutes of the meeting released yesterday. "The members saw substantial risks of rising pressures on labor and other resources and of higher inflation that called for some further firming of monetary policy at this meeting," the minutes said, referring to members of the policymaking group, the Federal Open Market Committee. "They agreed, though, that because a significant acceleration in inflation did not appear to be imminent and because uncertainties continued to surround the economic outlook, a gradual approach to policy adjustments was warranted." "Some members commented that, although a more forceful policy move of [a half-point] might be needed at some point, measured and predictable policy tightening moves . . . still were desirable in current circumstances, which included somewhat unsettled financial markets," the minutes continued. New economic statistics that have become available since indicated that economic growth has remained strong, but with some tentative signs of slowing, such as small decline in retail sales last month. On the inflation side, large swings in energy prices pushed the March increase in consumer prices up 0.7 percent but then kept them unchanged last month. The core portion of the consumer price index, which excludes volatile food and energy prices, rose 0.4 percent in March and only half that much last month. From Tuesday's statement, the FOMC's assessment of inflation risk "was even more strongly stated" than in March, said Ray Stone of Stone & McCarthy Research Associates, a financial markets research firm. "We think that unless economic or financial market conditions appear materially different at the time of the June 27-28 FOMC meeting, the committee will probably follow up with another" half-point increase.