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

To: FR1 who wrote (34092)	3/19/2001 11:51:23 PM
From: stockman_scott	Respond to of 65232

What Is the Fed Looking At? ________________________________________________ Monday March 19, 11:23 pm Eastern Time <<NEW YORK (Reuters) - Wall Street considers an interest rate cut of at least half a percentage point from the U.S. Federal Reserve a foregone conclusion to revive a faltering economy and stem sharp stock market losses. The Fed cut rates twice in January, by a half percentage point each time and once in a surprise move between meetings on Jan. 3, bringing its federal funds overnight bank lending rate to 5.50 percent. A recent Reuters poll found top government bond dealers split nearly evenly on the need for a far more aggressive rate cut of three-quarters of a percentage point. That would mark the sharpest single-step cut since the Fed slashed the discount rate by a full percentage point in 1991. The Fed's rate-setting Federal Open Market Committee (FOMC) convenes on Tuesday behind closed doors and is expected to announce any changes to interest rates at approximately 2:15 p.m. Tuesday. Following are key issues that will contribute to the Fed's decision on monetary policy: WHAT FED OFFICIALS HAVE BEEN SAYING: When the Fed last cut rates in January, it cited an erosion in business and consumer confidence, as well as weakening business spending on capital equipment and slumping retail sales to explain its move. Greenspan has since suggested that while consumer confidence has taken ``a steep falloff'' it has not yet dented spending on big-ticket items like cars and homes. Greenspan also has pointed out that an acceleration in the pace at which the economy and financial markets work means the central bank must respond quickly and aggressively -- a signal some economists say means they will cut sharply on Tuesday. ``Old economic policy must indeed adjust itself for the changing timeframe in which the economy itself is moving,'' Greenspan told lawmakers on Feb. 28. Fed policymakers also have made it clear they do not view inflation as a problem, signaling that the Fed believes it has plenty of room in which to cut rates without triggering a rise in prices. US ECONOMIC SCENE +GROWTH -- The U.S. economy grew at 1.1 percent annual rate in the fourth quarter, its slowest pace in more than five years and far below the 2.2 percent rate in the third quarter -- data the Fed had at hand the last time it met to set policy. Despite the slowdown, stockpiles rose more than expected in January, suggesting that the weak economy may take longer to rebound as inventory pileups are worked off. Inventories rose 0.4 percent in January, up 5.8 percent from year-ago levels. +SPENDING -- Retail sales fell in February for the first time in three months, down 0.2 percent. But the glum picture was softened by a sharp upward revision in January sales to a 1.3 percent gain, leaving an uncertain picture on spending. +CONSUMER CONFIDENCE -- The headline numbers for the two main measures of consumer confidence have tumbled sharply in recent months. But here too there are some mixed signals. The Conference Board's Consumer Confidence Index for February fell to 106.8 from 115.7 the prior month, but current conditions were not nearly as gloomy as future expectations. The University of Michigan's index preliminary read on consumer sentiment for March actually edged up a fraction to 91.8 from it 90.6 final reading for February. But many economists said that reading missed most of last week's equity carnage and it may yet resume its downward path. +MANUFACTURING -- The industrial sector is mired in recession. Industrial production fell 0.6 percent in February, quashing hopes the sector had found a bottom that were nourished by a slight upward bounce in the National Association of Purchasing Management index for February. NAPM rose to 41.9 in February from 41.2 in January but still revealed a sector undergoing contraction not expansion. +EMPLOYMENT -- February nonfarm payrolls growth slowed to 135,000 from a revised 224,000 in January, but was much stronger than expected. The unemployment rate, which many economists predicted would rise, held steady at 4.2 percent. Some Fed officials have recently suggested that the unemployment rate will eventually rise, though it is only 0.3 percent above it 30-year trough of 3.9 percent. +INFLATION -- The consumer price index (CPI), the broadest gauge of retail price pressures, rose by 3.7 percent in the year ended January up sharply from 2.7 percent a year earlier. Core inflation, which excludes volatile food and energy prices, also is up, rising 2.6 percent year on year in January, compared with 1.9 percent year-on-year rate in January 2000. +HOUSING -- Housing sales and construction have slowed but remain strong by historical standards supported by 30-year fixed mortgage rates near 1-1/2 year lows. Existing home sales in January rose to a 5.13 million unit annualized rate. New homes sales plummeted 10.9 percent in January to an annual rate of 921,000 after hitting a record 1.034 million in December. MARKETS +STOCKS -- While the Fed repeatedly says it does not target stock prices, the bludgeoning suffered by equity investors and the trillions of dollars in wealth lost the past few months has raised questions about the impact on the broader economy. The Dow Jones Industrial average has just rounded out its worst week since 1989 and is down nearly 1,000 points, or about 8 percent to 9,959.11, since the Fed last cut rates. The Standard & Poor's 500 index is in bear market territory down more than 20 percent from its peak and down 14 percent since the Fed last cut rates. The technology-weighted Nasdaq Composite is down more than 60 percent to 1951.19 since its high struck a little over one year ago and off about 30 percent since the last Fed rate cut. The Wilshire 5,000, the broadest measure of stocks and watched closely by Greenspan, is down 15 percent since Jan. 31, or 1,877 points. +BONDS -- Slumping stocks have helped drive money into the safety of U.S. Treasuries, driving up prices and pushing yields, which move in opposite direction, lower. Yields on two-year Treasury notes have tumbled 25 basis points to 4.31 percent from 4.58 percent on Jan. 31., although they are off their two-year low of 4.20 percent hit last week. Benchmark 10-year yields have fallen 29 basis points to 4.82 percent from 5.11 percent. April federal funds futures contracts are pricing in a 100 percent chance of a 50 basis point cut on Tuesday and a 56 percent chance of a 75 basis point cut, down from a likelihood of greater than 70 percent last Friday.>>