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To: Softechie who wrote (1134)	4/19/2001 12:41:25 AM
From: Softechie	Read Replies (1) \| Respond to of 2155

Bold Fed seen as potent U.S. anti-recession force -------------------------------------------------------------------------------- By Caren Bohan WASHINGTON, April 18 (Reuters) - The firepower of four interest-rate cuts by the Federal Reserve -- including its surprise move on Wednesday -- will go far toward warding off a U.S. recession, analysts said. But even after cuts totaling 2 percentage points this year, many economists said the central bank's campaign against an economic slowdown is not over yet. "Clearly, the message is that the Fed has every intention of continuing to cut until there is an economic recovery," said Lou Crandall, an economist with the Wall Street research firm Wrightson Associates. "They are almost certainly going to ease again in May," Crandall added, referring to the Fed's next regularly scheduled meeting on May 15. Twenty-four of the 25 primary dealers of U.S. government securities polled by Reuters on Wednesday forecast that the Fed would cut rates for a fifth time this year at that meeting. Despite an avalanche of gloomy news about weak corporate profits, sagging consumer confidence and a slackening job market, the Fed managed to catch Wall Street off-guard with Wednesday's half-point interest rate cut. The myriad of Fed watchers who parse every utterance from policymakers had concluded that the central bank was sanguine enough about the U.S. economy's health to delay any action until the mid-May meeting. THEY ALL CALLED IT WRONG How did they all get it wrong? For one thing, Fed rate changes outside regularly scheduled meetings, such as Wednesday's move, are extremely rare. The last time the Fed took such a step was on Jan. 3 but the last time before that was October 1998. And Fed officials, who had been out in force talking about the economy in recent weeks, seemed to go to lengths to emphasize that they preferred to move at meetings. "Not only must there be a significant benefit (to change rates between meetings), but the benefit has to be large enough to outweigh the costs of setting a precedent," St. Louis Federal Reserve Bank President William Poole said in a Reuters interview last month. Moreover, Poole and many of his colleagues, particularly the other presidents of the regional Fed banks, have played down the threat of a recession. They have emphasized that factories were beginning to pare down their bloated inventories, which could set the stage for a recovery soon. But as the statement released with Wednesday's rate announcement showed, the Fed is clearly worried that a pullback in business investment could prove to be a big drag on the economy going forward and they want to counter that. "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. NO TRIGGER IN DATA In contrast to what analysts might have expected, there was no "smoking gun" in the form an economic report that might have triggered the move. U.S. payrolls fell by a large 86,000 in March but they had risen at decent rates in both January and February. Industrial output has been extremely weak for several months but it had improved in the latest set of statistics. On the other hand, the anecdotal evidence of a flagging economy was piling up. For example, technology bellwether Cisco Systems Inc. issued a profit warning, citing a glut of unsold inventories. Private surveys showed economists starting to up their forecasts for a recession, projecting that the job market would worsen and that declines in the stock market would put a damper on consumer spending. "There are a lot of negatives hanging out there," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. Cheney and other analysts said the Fed may get added mileage out of its latest rate cut because it took nearly everyone by surprise. "The timing has to do with getting the biggest possible impact from the move," he said. Indeed, the action delighted the U.S. stock market, spurring an 8.1 percent surge in the technology-laden Nasdaq Composite Index and 3.9 percent jump in the Dow Jones industrial average. "I think that we will look back on this as a key moment that changed psychology," said James Glassman, economist at J.P. Morgan in New York. "It shows people that the Fed has zeroed in on exactly what it needs to do." Glassman agreed the Fed would continue cutting rates. He said the timing of the next move would depend on the data but projected the federal funds rate, brought to 4.5 percent by the Fed's latest move, would be chopped to 4 percent within the next few months. REUTERS Rtr 22:43 04-18-01