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To: Softechie who wrote (1131)	4/19/2001 12:34:02 AM
From: Softechie	Read Replies (1) \| Respond to of 2155

WRAPUP 2-Fed slashes U.S rates in rare move between meetings (Adds analysis, updates market reaction) By Glenn Somerville WASHINGTON, April 18 (Reuters) - The Federal Reserve slashed U.S. interest rates to their lowest in 6-1/2 years on Wednesday, sending stock prices skyward with a shock show of determination to keep alive the economy's record expansion. For a second time this year, the U.S. central bank delighted financial markets by aggressively cutting rates a half percentage point between regularly scheduled meetings of its policysetting Federal Open Market Committee. As stock markets celebrated, analysts praised the Fed's surprise show of resolve to keep alive the economic expansion which has continued since the last recession in 1990-91. The move showed the central bank's mounting concern that businesses were cutting spending so steeply that the economy was at risk of falling into recession. In a statement explaining its relatively rare step, the Fed said economic conditions still were tilted toward weakness -- a clear signal that it will cut rates again if necessary. The Fed's next scheduled FOMC meeting is on May 15 and another rate reduction is widely anticipated then. The latest Fed action, taken after an early morning conference call between Fed Chairman Alan Greenspan and other FOMC members, brings the federal funds overnight bank lending rate down to 4.5 percent -- its lowest level in more than 6-1/2 years. That was just before the Fed raised the fed funds rate to 4.75 percent in August 1994. The more symbolic discount rate on Fed loans to banks will fall to 4.0 percent. STOCK PRICES SHOOT HIGHER Stock markets, already in positive territory before the move, soared on the news that borrowing and investment costs would fall. The Dow Jones industrial average was ahead more than 400 points, or 4.3 percent, in early afternoon and the high-tech laden Nasdaq composite index was up more than 200 points, or 10 percent. The last time the Fed changed rates between scheduled meetings of its policymaking FOMC was on January 3. It has cut interest rates four times this year, for a total of two full percentage points. The Fed said progress was being made in reducing overstocked inventories and added that consumer spending and housing were holding up reasonably well. "Nonetheless, capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward," the Fed statement said. "This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threatens to keep the pace of economic activity unacceptably weak," it added. Analysts hailed Fed policymakers' determination to head off a recession in the world's largest economy. FED SHOWS ITS DETERMINATION "The Fed is underscoring a point," said economist Diane Swonk of Bank One Corp. in Chicago. "They are going to take whatever action necessary to make sure the ship doesn't sink." Bob Dederick, economic consultant to Northern Trust Co. in Chicago, said the Fed was highlighting its concern a capital investment boom that has fueled much of the expansion was seriously faltering. Big high-tech companies like Cisco Systems Inc. have been reporting falling earnings and orders. "As long as inflation is not a problem, recession-avoidance is priority number one at the Fed," Dederick said, "And worry number one is that business spending will go down and take the stock market and consumer spending with it." Earlier on Wednesday, the Commerce Department issued the February trade report that showed a record falloff in the dollar value of imports of consumer and capital goods. The overall monthly deficit declined to $26.99 billion from $33.25 billion in January, largely because companies were importing less amid waning consumer demand and high inventories. Economist Sung Won Sohn of Wells Fargo Bank in Minneapolis praised the Fed for a well-executed rate move that caught markets totally off-guard -- potentially having a longer-lasting stimulative impact on investor and business confidence. Most analysts had written off chances of any more rate moves before mid-May, but the Fed demonstrated it was poised to act whenever it feels it must do so to boost the economy. "All of us were really caught with our pants down and that's exactly what we needed," Sohn said. "In coming weeks, the Fed will get more bang for the buck from this action because it was so well-timed." Lawmakers who have sometimes criticized the U.S. central bank for being slow to act sang a different tune on Wednesday. "Aggressive action is needed to keep the economy above water," said Sen. Chuck Grassley, chairman of the Senate Finance Committee. "It's a lot easier to prevent a drowning than it is to rescue the drowned." The incoming chairman of the Congressional Joint Economic Committee, Rep. Jim Saxton (R-N.J.), said the Fed action was appropriate as it was partly to blame for the current slowing. "The economic slowdown under way since the middle of last year has been partially caused by Fed tightness, and this policy has now been modified." He added that the reductions in interest rates will improve prospects for economic growth ahead. REUTERS Rtr 18:59 04-18-01