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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: kendall harmon who wrote (2646)	8/18/2001 6:46:51 PM
From: Roger Schelling	Read Replies (3) \| Respond to of 26752

I found it interesting that some of the sector rotation people are not having a problem with the Industrial Production bottoming out after the market discounts it. Down toward the middle of this page. stockcharts.com This would indicate there is some divergence in another relationship concerning the dollar and the SP, as I understand it. stockcharts.com FWIW Roger Schelling

To: kendall harmon who wrote (2646)	8/19/2001 11:20:38 AM
From: Susan G	Respond to of 26752

Fed Seen Cutting Rates to Spur Economy Aug 19 9:32am ET By Caren Bohan WASHINGTON (Reuters) - Hoping to jump-start an economy that is barely growing at all, the Federal Reserve is expected to trim U.S. interest rates by a quarter percentage point on Tuesday, its seventh cut this year. Many Fed officials had hoped by now to see signs the world's largest economy was pulling out of its slump. But growth has remained frustratingly sluggish and some economists have become more concerned about the threat of a recession as questions have emerged over the effectiveness of rate-cutting. The upcoming closed-door Fed meeting may be marked by less sparring than other recent gatherings, analysts said. That is in part because even the heads of the regional Fed banks, many of whom expressed fear earlier this year of overstimulating the economy, have lately sounded more gloomy about the growth outlook, in tune with Fed Chairman Alan Greenspan. "I think there will be a lot of debate but not much disagreement on what to do," said Lou Crandall, chief economist at R.H. Wrightson and Associates in New York. Crandall said discussion around the mahogany table in the Fed's meeting room will center on the uncertainty in the forecasts for economic recovery and attempt to look ahead at whether potential future rate cuts will be needed. In a Reuters poll of 25 investment firms that trade directly with the Fed in fixed-income markets, sentiment was unanimous that the policy-setting Federal Open Market Committee would cut the federal funds rate by a quarter percentage point. The funds rate, which is what banks charge each other for overnight money, now stands at a seven-year low of 3.75 percent, after the Fed has chopped it so far this year by a total of 2.75 percentage points. Thirteen of the primary dealers, who were surveyed on Aug. 16, predicted no more rate cuts after next week, while 12 forecast at least one more quarter-point reduction at the following meeting in October or by year-end. MUDDLING ALONG "The economy is not really sinking but we're just treading water," said Robert Dederick, economic consultant to Northern Trust Co. in Chicago. "Until the Fed really sees evidence that things are turning around, they will be predisposed to ease." The Fed's rate decision will be announced at around 2.15 p.m. EDT (1815 GMT) on Tuesday. The federal funds futures market, where investors bet on central bank moves, did not entirely dismiss the possibility of a more aggressive, half-point cut in borrowing costs on Tuesday. But on Friday, the market was pricing in a fairly low 17 percent probability of that prospect while fully pricing in a quarter-point move. "To the extent that there is a debate at the meeting it will be between 50 and 25 (basis points)," said former Fed Vice Chairman Alan Blinder. But Blinder said an argument that could prevent the Fed from opting for the more forceful move is that there remain plenty of reasons to expect economic improvement, even though early signs of it have yet to emerge. Those include the six rate cuts the Fed did between January and June of this year, which should start to show their impact on the economy with a lag of six to nine months, and the prospect of a boost to consumer spending from tax rebates the government has begun mailing out. But Blinder said the Fed has cause to be concerned that its rate cuts are not packing the punch that might have been expected to help get the economy moving along again. POWER OF RATE CUTS QUESTIONED Bill Dudley, chief economist at Goldman Sachs, which developed a financial conditions index that gauges the potency of Fed rate cuts, agreed with that concern. "Monetary policy is helping the economy but much less powerfully than it has in the past," said Dudley, whose index takes into account the stock market, long-term interest rates and the strength of the dollar. The stock market is a key factor thwarting the effectiveness of the rate cuts, analysts said. Its recent declines could put a damper on consumer and business spending. In recent weeks, long-term bond yields and the value of the dollar have come down a little. But Dudley said the moves have not been large enough to loosen up financial conditions in a way that would normally be associated with the kind of steep cuts in short-term rates the Fed has carried out. When long-term market interest rates fall, key rates for consumer loans such as mortgages decline as well, helping to stimulate home-buying and other purchases. A cheaper dollar can help growth by making it easier for U.S. producers to sell their goods abroad. One issue unlikely to loom large at Tuesday's meeting is inflation. "I think the Fed, and especially the chairman, have made it clear that they're not worried about inflation now," Blinder said. Helping to give the Fed freedom to cut rates, new data from the Labor Department showed last week the Consumer Price Index fell 0.3 percent, posting its sharpest decline in 15 years. reuters.com