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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jimbo who wrote (25596)	12/17/2000 3:07:42 PM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Fed Seen Paving Way for U.S. Rate Cuts By REUTERS Filed at 9:31 a.m. ET December 17, 2000 WASHINGTON (Reuters) - It will be the thought of an interest rate easing, not the deed, that counts when Federal Reserve policymakers meet on Tuesday for the last time this year to discuss the U.S. economy. What world financial markets are looking for this week is not cuts in borrowing costs -- those are widely deemed to be a few weeks off even though the economy has already slowed drastically. What they want to hear, analysts say, is a formal expression of the Fed's openness to such rate easings. Judging from a slew of recent comments by the Fed's top brass, that is just what they will get. Fed Chairman Alan Greenspan and his colleagues have made it abundantly clear that they now regard a sharp slowdown in growth as at least as big a risk to the economy as an inflationary overheating. That acknowledgment marks the first step on the Fed's path toward cutting the key federal funds overnight bank lending rate, which determines interest rates throughout the economy and far beyond, from its current level of 6.5 percent. ``Look for a balanced risk assessment, with a small probability that the Fed will even acknowledge a slowing economy as the predominant risk,'' Banc of America Securities in New York advised its customers on Friday. The Fed's rate-setting Federal Open Market Committee meets behind closed doors from 9 a.m. (1400 GMT) on Tuesday. It is due to announce its decision at around 2:15 p.m. (1915 GMT). The FOMC meeting comes against the backdrop of an economy that has slowed dramatically from the inflation-prone pace of growth seen earlier this year and last. Industrial production, consumer confidence and spending all have fallen off sharply and stocks have sold off dramatically since their highs of last winter. Meanwhile, the latest inflation readings have been relatively benign. HERE'S THE PLAN Greenspan himself gave the marching orders earlier this month when he provided his most explicit acknowledgment to date of the economic slowdown under way. ``In an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending,'' he told a banking group. Investors heard the often cryptic Greenspan loud and clear: No longer is inflation the prime economic risk, as the Fed had claimed throughout the year. Indeed, rate cuts may be needed soon to prevent the economy from hitting a brick wall. That posture signals a drastic shift from the Fed's six rate rises between June 1999 and May of this year that were aimed at keeping inflation under wraps in the booming economy. As to the extent of the rate cuts that the majority of Fed watchers forecast for next year, opinions vary. But an increasing number of them think the powerful U.S. central bank may start easing off the monetary brake as soon as its Jan. 30/31 meeting, just days after President-elect George W. Bush takes up residence in the White House. ``If the economic momentum decelerates faster, a cut may come as early as Jan. 31,'' said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis. Rate cuts early next year may go a long way to ensuring cordial relations between the White House and the fiercely independent Fed. Already, Bush has banged the drum about his fears of an excessive economic slowdown. Dick Cheney, his Vice President-elect, has even warned of an impending recession.