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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (55605)	6/28/2000 4:24:00 PM
From: UnBelievable	Respond to of 99985

She Was There Too - As An Advisor

To: Les H who wrote (55605)	6/28/2000 4:38:00 PM
From: Les H	Respond to of 99985

re: FOMC statement FED STATEMENT WORDS YIELD DIFFERENT ANALYST INTERPRETATIONS 15:49 EDT 06/28 By Steven K. Beckner Market News International - The Federal Reserve's unsurprising Wednesday announcement that it had decided to leave short-term interest rates unchanged immediately set off speculation about when the Fed will resume raising rates. Some Fed watchers, such as Nomura Securities' chief economist David Resler, think the Fed could be done tightening, but most think the odds favor at least one more rate hike, beginning with the August 22 Federal Open Market Committee meeting. A 50 basis point rate hike may well be needed at that time, in the view of Richard Berner, chief U.S. economist for Morgan-Stanley. Aubrey G. Lanston chief economist David Jones, among others, say the Fed is more likely to limit the next tightening move to 25 basis points. On the Chicago Board of Trade, federal fund futures contract pricing indicated an 86% chance of a 25 basis point August rate hike, compared to a 92% chance before the Fed announcement. Further tightening will depend upon whether economic growth continues to moderate, or whether there is a resurgence, and the Fed itself confessed the outlook is very much in doubt. After two days of closed-door meetings, the FOMC voted to leave the key federal funds rate at 6.5%. The discount rate was left at 6 percent. That's where those rates have been since the Fed raised them half a percentage point in mid-May to prevent a fast-growing economy with mounting labor shortages from causing worse wage-price pressures. Since the May move, there have been signs of economic slowing, and the Fed took note of that in a statement: "Recent data suggest that the expansion of aggregate demand may be moderating toward a pace closer to the rate of growth of the economy's potential to produce." What's more, it said, "although core measures of prices are rising slightly faster than a year ago, continuing rapid advances in productivity have been containing costs and holding down underlying price pressures." However, the Fed statement added that "signs that growth in demand is moving to a sustainable pace are still tentative and preliminary, and the utilization of the pool of available workers remains at an unusually high level." As expected, the Fed rounded out its no-action announcement with its new boilerplate bias jargon, saying the FOMC "believes the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future." The carefully balanced statement left ample room for interpretation. Jones said he regarded it as "much more moderate than some feared." He said the wording conveys "a sense of much less urgency about further rate hikes" and suggests "the Fed really feels its earlier rate hikes are paying off and that, therefore, they can move more slowly." But Jones said the statement "in no way rules out one or maybe two more 25 basis point rate hikes." He said the most likely scenario is a 25 basis point hike at the Aug. 22 FOMC meeting and a second at either the Nov. 15 or the Dec. 19 meeting. "But it certainly appears there is some light at the end of the tunnel, at least in the Fed's view. They are not going to have to do a lot more tightening to get to a smooth landing." Berner, by contrast, thought the statement "emphasized the tentative and preliminary nature" of the slowing signs, signifying that the Fed is "very wary that this (slowdown) may be a repeat of last year." "They are still very concerned about utilization rates and they want to leave their options open," Berner continued. Berner said he would "expect them to have enough evidence at the August meeting to get back in action" and added that "they'll probably have enough evidence to do 50." He said there is "a lot of support at the Fed for having to be more aggressive" than 25 basis points. If the Fed does raise rates by 50 basis points in August, he said that should "be enough for awhile." David Resler, chief economist for Nomura Securities International Inc., attached no great significance to the Fed's statement about signs of moderation being "tentative and preliminary," observing, "That's always the case. There are no data which are not six months old that are not tentative and preliminary." Resler found it more significant that the statement referenced the role of productivity in restraining inflation. "I don't think that at this juncture (the statement) tells us much one way or another about a move in August," Resler said. "That's going to be determined by the data." Resler said his guess, though, is that "it's close to a toss-up whether the Fed is done or not." He said indications of slower demand suggest that the real federal funds rate is high enough to achieve the Fed's objective. He said "the odds are only slightly better than 50-50 we get a rate hike in August." Bank of America economist Peter Kretzmer read the Fed rate announcement as "a cautious, moderately hawkish statement" with its reference to higher core inflation and "unusually high" labor utilization rates. He said the Fed "reserved judgment on whether the slowdown is sufficient or will last" and indicated it is "on hold while they pause and look at more data." Over coming weeks, Kretzmer said the Fed will be looking carefully at wages and prices, as well as demand. "If we get a snap-back in demand, they will resume tightening." Kretzmer said "an insurance 25 basis point rate move in August is a good possibility." At that point, he said, the Fed would probably move to a neutral stance.