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To: Patrick Slevin who wrote (42505)	12/19/2000 2:34:03 PM
From: SE	Read Replies (1) \| Respond to of 44573

Tuesday December 19, 2:26 pm Eastern Time Fed Keeps Rates Steady WASHINGTON (Reuters) - The U.S. Federal Reserve kept interest rates steady on Tuesday but warned the economy was slowing so fast that there was a risk of a sharp downturn, a signal the central bank was preparing to cut rates soon. The statement issued by the Federal Open Market Committee at the conclusion of its eighth and final session this year represented a sharp shift from its 11-month-old position that inflation was the greatest risk the record U.S. expansion faced. ``The drag on demand and profits from rising energy costs, as well as eroding consumer confidence, reports of substantial shortfalls in sales and earnings, and stress in some segments of the financial markets suggest that economic growth may be slowing further,'' the FOMC said in its post-meeting statement. U.S. stock markets gave up much of their pre-meeting gains, with the technology-laden Nasdaq plunging into negative territory after rallying as much as 2 percent minutes before the announcement, after the news. ``This is exactly what we expected, this is good news. The Fed is moving in the right direction and clearly signaling interest rate cuts in the first quarter of next year,'' said Arthur Hogan, chief market analyst at Jeffries & Co. in Boston. Justifying its shift in stance, the Fed said: ``While some inflation risks persist, they are diminished by the more moderate pace of economic activity and by the absence of any indication that longer-term inflation expectations have increased. The Committee will continue to monitor closely the evolving economic situation.'' The Fed kept its federal funds overnight bank lending rate at 6.5 percent for now, where it has been since a half-percentage point increase in May. The more symbolic discount rate on Fed loans to banks remains at 6.0 percent.