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

To: Jim Willie CB who wrote (33008)	3/10/2001 5:37:45 PM
From: stockman_scott	Respond to of 65232

Economic Pessimism 'Overdone'-Fed's Guynn Saturday March 10, 4:22 pm Eastern Time By Barbara Hagenbaugh <<NEW ORLEANS (Reuters) - Pessimism about the U.S. economy is overdone, the head of the Atlanta Federal Reserve said on Saturday, becoming the latest central banker to express optimism about the world's largest economy. While painful adjustments are taking place in the world's largest economy, the factors that have led the nation through its decade-long expansion are still in place and will continue to guide the economy in the future, said Jack Guynn, president of the Federal Reserve Bank of Atlanta, 10 days before the Fed's next interest rate meeting. ``Yes, we are currently working our way through some temporary imbalances that are painful to some industries, companies, employees and investors,'' Guynn said in a speech at the Money Watch Live 2001 conference. ``But the fundamentals of the U.S. economy remain in very good shape,'' he told a packed convention hall. On the inflation front, Guynn said price pressures have been low, suggesting that the threat of higher prices was not strong enough to stop the inflation-fighting Fed from cutting interest rates. ``In a low-inflation environment, like we've had recently, real economic signals are clearer, inflation risks are lower, and investments are much more likely to be profitable,'' he said. TEN DAYS AND COUNTING The Fed is widely expected to cut rates by a half-percentage point on March 20 after slicing rates a full percentage point -- an extremely rare move -- in January in response to growing evidence that the once-booming U.S. economy has quickly lost steam. Guynn declined to answer a question about the future course of interest rates but said the Fed's moves in January probably had an immediate impact on the economy. Guynn is not currently a voting member on the Fed policymaking committee, which rotates among the regional bank chiefs. ``We have tried, I think, as a body to respond very quickly,'' he said. ``I have to believe that -- some immediately and some over time -- effects can come from what I think were pretty aggressive and pretty quick actions. Stay tuned to what we do next.'' A slew of Fed officials have painted rosy pictures for the future of the economy in recent days, although their words have not derailed expectations of the hefty rate cut. Like Guynn, his colleagues predicted a rebound before the year is up. In Rome on Friday, Vice Chairman Roger Ferguson said he expected ``a normal slowdown'' in the first quarter and after that, ``I would expect to see a gradual pickup.'' Guynn said he expected economic growth will pick up speed to ''at least'' a moderate pace later this year. The Fed said on Wednesday in its latest report on economic conditions that the United States posted ``sluggish to modest'' growth in January and February. In the fourth quarter, the U.S. economy grew at a 1.1 percent annual pace, the slowest rate in 5-1/2 years. Such meager growth has some economists worrying that the United States may be headed for a recession -- commonly defined as two consecutive quarters of contraction. ``OVERDONE'' But Guynn said all the worrying may be going overboard, noting that the strong tradition of entrepreneurship in the United States will continue to be a key factor in the success of the economy. ``I will concede that America's entrepreneurial spirit was a lot more apparent at this time last year, when everybody knew someone who chucked his or her career to go work for a start-up and the NASDAQ soared to over 5000,'' he said. ``That was just as overdone as the pessimism we're witnessing now.'' In addition to entrepreneurship, Guynn said he expected business investment will increase, leading to more gains in worker productivity, the star of the record expansion. He also said consumer spending -- which accounts for two-thirds of U.S. economic output and has cooled in recent months -- will also pick up, despite a slight increase in the percentage of workers without jobs. ``While we're likely to see some uptick in unemployment rates as the economy continues its temporary adjustments, unemployment should remain low by historical standards,'' he said. ''Consequently, the longer-term prospects for income gains, and therefore consumer spending, remain positive.'' The government reported on Friday that the unemployment rate in February held steady at 4.2 percent, slightly above the 30-year-low seen last year. At the same time, the number of jobs created were higher than expected. The report led some analysts to upgrade their estimates of first-quarter growth and reduce forecasts for interest rate cuts later this year.>>