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To: Return to Sender who wrote (572)	5/13/2001 10:23:33 PM
From: Return to Sender	Respond to of 95738

Fed Expected to Deliver Another Rate Cut dailynews.yahoo.com By Caren Bohan WASHINGTON (Reuters) - The Federal Reserve (news - web sites) on Tuesday is expected to administer yet another dose of its anti-recession medicine -- interest rate cuts -- to try to boost the ailing U.S. economy. But some analysts said Fed policy-makers may think about taking a pause in their rate-reduction campaign, possibly following any action they might take this week or after the next meeting on June 26-27. ``I think the chances are better than 50-50 that we'll get another 50 basis point (1/2 point) cut in interest rates on Tuesday,'' said Lyle Gramley, consulting economist at Mortgage Bankers Association and a former Fed governor. But he added, ``We're approaching a period in which the Fed is going to go more slowly as it pushes the accelerator on the economy.'' The Fed is expected to announce the outcome of its upcoming meeting at around 2:15 p.m. on Tuesday. LIGHTNING-FAST RATE MOVES In four moves this year totaling 50 basis-points each, the Fed has hacked 2 percentage points off the federal funds rate, the benchmark for short-term U.S. interest rates. The rate, which governs overnight loans between banks, now stands at 4.5 percent, down from 6.5 percent at the beginning of the year. The pace of the rate cuts has been extremely rapid by historical standards. Further underscoring the concern about the economy, Fed Chairman Alan Greenspan (news - web sites) has twice taken the rare step of lowering rates outside regular meetings of the policy-setting Federal Open Market Committee (news - web sites). He did so on Jan. 3 and, more recently, on April 18. A survey by Reuters taken on Friday showed that 24 of the 25 banks and investment firms that trade directly with the Fed predicted a 50-basis-point cut on Tuesday. One dealer thought the central bank would reduce the rate by only 25 basis points. Even though a large majority of economists project a half-point cut, some seeds of doubt about the size of the move were sewn by a government report on Friday that showed a bigger-than-expected rise in retail sales in April. The Commerce Department (news - web sites) said sales at retail stores grew a hefty 0.8 percent last month, rebounding from declines of 0.4 percent in March and 0.2 percent in February. But some economists played down the significance of the April report. ``The Fed is looking at declines in employment. They will look at the retail sales number and see a bounce after abysmal numbers in March and February,'' said Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter in New York. NO CONTRACTION YET The U.S. economy, while fragile, has yet to record any contraction in gross domestic product, which is significant since a recession is loosely defined as two straight quarters of shrinking GDP (news - web sites). In fact, according to preliminary estimates from the Commerce Department, it grew at a better-than-expected annual rate of 2 percent in the first quarter, a figure that private economists said could be revised down a bit based on the soft February and March retail sales numbers. But Corporate America is plagued by profit worries and -- despite an apparent shopping spree in April -- there are signs that businesses' woes may be spilling over to the consumer, the stalwart of the 10-year economic expansion. ``At least one more aggressive rate cut would not be unreasonable at this time,'' said Ken Matheny, senior economist at Macroeconomic Advisers LLC. Matheny said he thought it might be a close call for the Fed as to whether to cut rates by 50 basis points or just 25. But he and other economists said that tipping the odds toward the bigger rate cut was the April employment report, which showed that payroll employment plunged 223,000 after a 53,000 job loss in March. The unemployment rate rose to 4.5 percent from 4.3 percent. If the Fed opts to lower the funds rate by another 50 basis points, economists said it would mark a fairly accommodative position by the central bank, which looks closely at ``real'' or inflation adjusted rates to gauge its policies. With a 4 percent fed funds rate and inflation running at 3 percent a year, the real interest rate would be about 1 percent. ``I wouldn't be surprised if the Fed decides to pause'' after a rate cut at the upcoming meeting, Berner said. In what some economists saw as a signal the Fed is getting close to take a breather on rate reductions, central bank officials, in their public remarks, have placed more emphasis lately on concerns about inflation. For example, in an interview a week ago with Reuters, Fed Governor Edward Kelley said: ``I am concerned about inflation. We have seen unit labor costs rising in recent quarters and, in my mind, that is a major driver of inflationary impulses.'' On Friday, Minneapolis Federal Reserve Bank President Gary Stern said the economy appears to have ``stabilized at this modest rate of growth.''