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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: MrLucky who wrote (26139)	6/6/2001 5:58:21 AM
From: Sharck	Respond to of 37746

Here it is, thanks Lucky: Tuesday June 5, 8:43 pm Eastern Time Fed room to cut interest rates shrinking-Broaddus (UPDATE: Adds quotes, background) By Barbara Hagenbaugh WASHINGTON, June 5 (Reuters) - The U.S. economy may not have hit bottom yet, but the central bank does not have much more room to help it with interest rate cuts because rates are already low, Federal Reserve Bank of Richmond President Alfred Broaddus said on Tuesday. ``It's far from clear at this point that the economy is bottoming out, and if it continues to weaken, additional stimulus may well be needed,'' Broaddus told the Washington Association of Money Managers. ``Still, it is worth noting that the degree of monetary stimulus currently in place is already substantial by recent historical standards...and we do not have much leeway before it exceeds standards consistent in recent experience with successful outcomes.'' The Fed has cut interest rates by an aggressive 2-1/2 percentage points this year to try and put the shaky U.S. economy on a firmer footing. The key federal funds rate now stands at a seven-year low of 4.0 percent. That puts the real fed funds rate, which subtracts out inflation expectations, at a mere 1 percent. Broaddus noted that the last time the real fed funds rate approached zero was in 1992 and 1993, when the U.S. economy was much worse off than it is now and inflation was considerably lower, giving the Fed more room to reduce rates. ``This comparison suggests that if, in fact, the economy were currently bottoming out, we would not need as much stimulus as we applied in 1992 and '93,'' he said. The message from Broaddus' comments was seen as similar to that garnered from a speech by Fed Chairman Alan Greenspan less than two weeks ago: The Fed is ready to cut rates further, but don't expect a continued spree of aggressive, half-point moves. Broaddus is not a voting member on the Fed's policymaking committee this year, following the usual rotation among regional Fed presidents. CONSUMER CONUNDRUM Broaddus said there was still a large overhang of inventories in the high-technology sector, specifically in segments like computer equipment and software. ``Prospects for rapid adjustment of this imbalance don't seem very favorable at this point,'' he added. He said near-term prospects for the U.S. economy depend ``to a considerable degree'' on how quickly the manufacturing sector can work through its inventory and capacity overhangs. ``That, in turn, will depend in part on how well consumer spending is maintained, which will depend in part on how quickly the factory sector works through its adjustment,'' Broaddus said. ``So there is a bit of a chicken-and-egg issue here and I don't know exactly how things will turn out. Suffice it to say that while the economy could reaccelerate sometime in the fairly near future, it's not clear that we have bottomed out yet and there are still considerable downside risks.'' However, Broaddus said, ``We've got a slowdown, I think we're going to come out of it,'' adding, ``exactly when I don't know.'' MANUFACTURING BLUES Broaddus said one of the big risks to the economy lies in the beleaguered U.S. manufacturing sector. The Richmond Fed chief said there was a wider recognition of the extent of the weakness in the manufacturing sector and its potential impact on other sectors of the economy. ``The weakness in manufacturing could spread to other industries and prolong and deepen the slowdown,'' Broaddus said, adding that laid-off manufacturing workers spend less and that pullback can feed into non-manufacturing sectors. In its closely watched gauge of industrial activity, the National Association of Purchasing Management reported last week that its index fell to 42.1 in May from 43.2 in April, sagging back toward a decade low of 41.2 hit in January, and denting hopes that three months of mild gains showed the manufacturing sector could claw out of its slump. Broaddus said all is not bleak for the economy, however. Pluses include the progress the automobile sector and related industries have made in rebalancing inventories, the stabilization in the stock market, a recent uptick in consumer confidence, and prospects for lower energy prices as indicated by crude oil futures markets. There is also the impact of the Fed's five interest rate cuts and the recently passed $1.35 trillion tax reduction package. Broaddus also said there was ``relatively little risk at present of a resurgence of either inflation or inflation expectations.'' However, he noted the increase in consumer prices as well as an increase in inflation expectations according to Treasury bond rates.