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To: 2MAR$ who wrote (101)	6/18/2001 8:44:14 PM
From: $Mogul	Respond to of 208838

Forbes: "Fed officials lay groundwork for further rate cuts" forbes.com ======================================================================= >>>Fed officials lay groundwork for further rate cuts Reuters, 06.18.01, 4:30 PM ET BOSTON, June 18 (Reuters) - Federal Reserve officials on Monday laid the groundwork for further interest rate reductions, but signaled the central bank may slow its aggressive pace of cutting so far this year. Boston Fed President Cathy Minehan said she was not certain the economy would rebound in the second half of this year and also did not know whether the Fed had lowered rates enough yet to ensure such a recovery. Richmond Fed President Alfred Broaddus said he was not sure the worst of a nearly year-old slowdown was behind yet and more rate cuts may be needed. But he added the Fed does not have much room to further boost the economy with rate cuts because it had already lowered rates substantially this year. Both Minehan and Broaddus are heads of regional Fed banks who participate in Washington meetings of the Fed's policy-making arm, the Federal Open Market Committee (FOMC). Minehan is a voting FOMC member this year but Broaddus is not. The FOMC meets next week on June 26-27 when Wall Street widely anticipates another interest rate cut to resuscitate the moribund economy. "The consensus forecast continues to see a pick-up in the latter part of the year and I think there is a good chance this is what will happen," Minehan told the Boston Municipal Research Bureau. "But this is by no means a certain outcome and the preponderance of current economic data suggests that in the short run, downside risks are real." U.S. growth has slowed to a snail's pace over the past year after booming in the late 1990s. The Fed has responded by cutting the benchmark overnight bank lending or federal funds rate by a total of 2.5 percentage points so far this year. A Reuters poll of leading bond dealers on Friday found that 19 of 25 expect a quarter-point cut in the 4.0 percent funds rate next week while six expect a half-point cut. There was little reaction in U.S. stock and bond markets on Monday to the latest Fed speakers. WORST MAY NOT BE OVER Broaddus, in a speech to the Virginia Bankers Association in Hot Springs, Virginia, said the Fed does not yet know if the economy is bottoming out. "And if it continues to show signs of weakness, we may in fact need additional stimulus," he said. "Still, it is worth noting that the degree of monetary stimulus currently in place is already quite substantial by recent historical standards...and we don't have a lot of leeway to reduce it further before we get to a level that can cause us difficulties." Broaddus gave a similar speech two weeks ago. Minehan said the economy did not appear to be in a recession -- typically defined as two consecutive quarters of contraction -- but to those hardest hit, such as manufacturers, it feels like one. "These are questions to which I don't have answers, but they also shape my heightened sense of uncertainty," Minehan said. "How does the central bank know how much is enough? Is the monetary stimulus already in the pipeline sufficient, or is more needed to ensure recovery? ... Are these rates low enough, given demand conditions?" Both Fed presidents discussed the risks to the economic outlook. Minehan said there had been a "distinct pause" in business spending on capital equipment in the current quarter after such outlays grew at double-digit rates in the second half of the last decade. This could translate into a drop in productivity in the short run, although longer term, she said she saw solid productivity growth. Broaddus said it was unlikely the economy would reaccelerate in the near future, adding there were still "considerable downside risks." Weakness in the manufacturing sector, which has been hardest hit by the slowdown, may spread to other areas of the economy, he warned. "I think near-term prospects for the economy will depend to a considerable degree on how quickly the factory sector can work through these imbalances," Broaddus said. For much of last year, businesses scurried to keep up with booming demand only to get caught with shelves of unsold goods when the economy slowed sharply late in the year. Minehan said resilient U.S. consumer spending has been the economy's "ace-in-the-hole" so far. But continued spending by consumers will be key to keeping the economy growing. The administration's tax cuts should underpin consumer spending, boosting outlays beginning in the third quarter of this year, Minehan said. She expects the tax cuts and related spending to increase gross domestic product growth by 0.50 to 0.75 percentage point both this year and next. Both Minehan and Broaddus said inflation was not much of a concern now but could become one further down the road after all of the stimulus from Fed rate cuts and the administration's tax cuts has worked its way through the economy. The Fed typically raises interest rates to stave off inflation. REUTERS Rtrs16:30 06-18-01 Copyright 2000, Reuters News Service.<<<