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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (3700)	4/9/2001 10:22:12 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Ron, could be.....here is a pro-cut view from today: Updated: 09-Apr-01 New in the Research Section: FOMC Intermeeting Ease Still Makes Sense Despite the smiles which finally appeared on faces after the release of an upturn in consumer confidence, the economic outlook is a bit more complex than a one month rise in a survey. We continue to believe that an intermeeting ease makes sense as the funds futures market has largely priced out the possibility, probably helped by Greenspan's statement that the Fed prefers to move at FOMC meetings. Nevertheless, flat growth (read: near recession growth) provides the rationale despite the admittedly weak odds that the Fed pulls the trigger before the May 15 policy meeting. First, recall the tone of the March FOMC directive. The text referred to pressures on profits and equity wealth declines which have put a clamp on investment and consumer spending. And the excess productive capacity and global economic weakness which leave substantial [emphasis added] risks that the economy would remain soft which will leave the Fed on increased alert (see the FOMC directive). Simply put, the underlying risks haven't lessened in the last week. A compelling piece in the March 26 Barron's reminds the reader of the risk that the Fed policy stance in 2000 may have pushed the economy in to recession. An article written by respected equity analyst Martin Zweig highlights 13 indicators which argue that the economy has already slumped in to recession and the likelihood that GDP revisions could eventually turn 4th quarter's GDP growth to a decline. The continued stock market rout and its lead on spending/investment/confidence is also a key economic driver as investors require more guarantee that the Fed has taken out enough economic insurance before stepping back in. The funds futures market hasn't completely given up on expectations for an intermeeting ease. The April contract prices funds at 4.92% (April average) which would be consistent with a 25 bp ease late in the month (Friday, 4/20). The May contract prices in a fourth 50 bp ease at the May 15 which is more consistent with what the Fed has showed since the intermeeting policy turning ease of January 3. Small odds are given to a larger 75 bp ease at the May meeting. Please Alan: call it pre-emptive or front-loaded or insurance, just call for an intermeeting ease rather than wait another long six weeks. As the FOMC minutes stated, the evolved economic process (given improved inventory management and information flow) requires a more aggressive, front-loaded policy response. So if the plan is to continue to ease to an accommodative funds rate, why wait? Supporting a near term move is Fed research which notes that a surprise move carries far more weight than one in line with expectations. An early ease may also return the markets' perspective to one believing that the Fed is in front of the curve rather than watching from the back seat (of a locomotive running down hill).