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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (4231)	4/18/2001 1:23:57 PM
From: 2MAR$	Respond to of 5732

FOMC Sees Pluses, But Risks Here And Abroad The Fed filled an extended vacuum with its intermeeting rate cuts on Wednesday. This was only the third time since the Fed began announcing policy moves in February 1994 that they cut rates other than at a FOMC meeting. The other two times were in October 1998 and January 3 of this year. In the press release announcing their rate cut, the FOMC noted "this extended intermeeting period," referring to the span between their last meeting on March 20 and the next FOMC meeting scheduled for May 15. That eight-week period is one of the longer intermeeting spans and Wednesday was just about the mid point between the two meetings. Symmetry aside, the move surprised almost every market participant. "It was pretty strange that they moved today," said Henry Willmore, senior U.S. economist at Barclay's Securities. The economic data have recently been more positive on the economy's near term prospects. On Tuesday, the Fed itself announced that industrial production rose by a solid 0.4% in March following five straight monthly declines. The FOMC statement noted positive developments leading with the fact that "a significant reduction in excess inventories seems well advanced." In addition, the statement noted that "consumption and housing expenditures have held up recently well," but it added that "activity in these areas has flattened recently," suggesting that the Committee wanted to insure continued improvement in those areas. But Then There Were The Negatives However, the third paragraph of the FOMC's statement noted the concerns that the Committee considers of greatest concern. Softness in capital investment and "the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook" endangers future capital spending. Capital spending - particularly in the high tech area - has underpinned the productivity growth that the Fed has long touted as key to sustained non-inflationary growth. The Committee noted that this effect "together with the possible effects of earlier reduction s in equity wealth on consumption and the risk of slower growth abroad," threatened to keep economic activity "unacceptably weak." It may have been an especially deft move on the Fed's part to have taken the move now, after equity markets had already begun to recover on their own. In the immediate aftermath of the announcement the equity markets roared further ahead. The Central Bank Of The World The Fed's actions were mainly in response to domestic economic considerations, but there was more to the decision to act. The reference to "the risk of slower growth abroad" in the release echoes their concern over "the potential for weakness in global economic conditions," in the statement after the Mar. 20 FOMC meeting, when the Fed enacted a 50 basis point cut. This is a clear sign that the Fed also sees itself as the central bank of the world, despite Greenspan's publicly expressed reluctance to take on this role, and is taking steps to insure that the recent weakness in the U.S. doesn't spread and result in a cumulative downturn. Recent speculation about the risks of a global slowdown, have likely made the Fed take these risks more seriously and were a subsidiary factor influencing their decision to take their surprise action on Wednesday. By John McAuley, Dow Jones Newswires, 201-938-4425; john.mcauley@dowjones.com . (END) DOW JONES NEWS 04-18-01 01:23 PM * end of story *