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To: Boplicity who wrote (40449)	8/21/2001 1:55:33 AM
From: stockman_scott	Respond to of 65232

Fed Seen Cutting Rates Again Tuesday August 21, 12:27 am Eastern Time By Caren Bohan WASHINGTON (Reuters) - Aiming to rev up an economy that has shifted into low gear, the Federal Reserve is expected to shave U.S. interest rates by a quarter-percentage point on Tuesday, its seventh cut this year. Even though there was widespread agreement among analysts that the central bank would decide to cut the key federal funds rate to 3.50 percent from 3.75 percent, financial markets kept up their usual vigil ahead of the decision. Stocks and the U.S. dollar gained on Monday but Treasury bond prices fell as traders took profits from last week's rally ahead of the meeting. In addition to the rate decision, which will be made public at around 2:15 p.m. EDT, investors are eager to see a short statement from the Fed that should shed some light on its thinking about the economy. Of interest to the market participants trying to gauge how long the easing cycle that has taken interest rates down by 2.75 percentage points this year will last, would be any language that might indicate the Fed thinks the U.S. economy may have hit bottom in its slump and is starting to recover. Chris Rupkey, economist at Bank of Tokyo/Mitsubishi in New York, said this wording would be unlikely. ``I don't think they are going to want to put any wishful thinking in the statement,'' Rupkey said. ``It could be pretty cut and dried, suggesting that the rate cuts will be good medicine that will help the economy.'' TENTATIVE FORECASTS FROM FED The economy, which began slowing around the middle of last year, barely grew at all in the second quarter of 2001, according to the latest figures from the Commerce Department. In fact, many economists think that when Commerce releases revised figures on gross domestic product at the end of this month, they may show the economy logged zero growth or possibly even contracted in the April-to-June period. Gloom about how long the slowdown will persist has hung over Wall Street like a dark cloud in recent months. Addressing Congress on July 18, Fed Chairman Alan Greenspan described the economy as still weak and deteriorating in some areas and was reluctant to be pinned down on when it would recover. ``If I had to make a forecast ... toward the end of this year we will see things improving and clearly so next year,'' he said. Echoing the notion that the sluggishness could drag on, Atlanta Fed President Jack Guynn told Reuters in an interview earlier this month: ``The process, the adjustment process, is just taking longer than I -- and I think many other people -- thought that it would.'' For most of this year, the worst aspects of the economic weakness have shown up in the high-technology sector, which saw the enormous boom of the late 1990s and early 2000 fizzle as demand suddenly plummeted. An announcement from Ford Motor Co. on Friday of job cuts and an intention to restructure added to the investment community's dejection about economic prospects as it highlighted worries that the high-tech troubles were spilling over into so-called Old Economy sectors. Still, Mark Vitner, economist at First Union Bank in Charlotte, N.C., said there have been some tentative signs of stabilization in the overall economy. ``We're beginning to see some encouraging news in the retail sector. Traffic is up a little bit,'' he said. Some economists also pointed to a steadier trend in new claims for unemployment insurance, which fell to 380,000 in the week ended Aug. 11 from 388,000 in the previous week. CASE FOR 50 BP SEEN WEAK With pessimism widespread, analysts said there may be an argument made at the Fed meeting for moving by 50 basis points instead of by a more modest 25 basis points. But ultimately they believed the central bank would eschew that aggressive option. In a move that marked a turning point to a more gradualist policy, the Fed at its last meeting on June 27 reduced rates by a quarter-point, breaking with the pattern of half-point moves that had characterized its rate cuts earlier this year. Lou Crandall, chief economist at Wrightson and Associates in New York, said such a decision would have two key drawbacks. ''One is that it would tell the markets that the Fed thought it made a mistake in June. The second is, it would lead the markets to wonder, 'What does Greenspan know that we don't know?''' Rupkey agreed, saying the last thing the markets need right now is more uncertainty, and any unexpected action could lead to greater uncertainty.

To: Boplicity who wrote (40449)	8/21/2001 2:11:16 AM
From: stockman_scott	Respond to of 65232

Fed Seen Cutting Rates Into the Fall The Associated Press Aug 21 2001 1:20AM WASHINGTON (AP) - The Federal Reserve already has staged its most aggressive reduction in interest rates in almost two decades, and many analysts believe the central bank isn't done yet. Private economists are looking not only for a seventh rate cut at the end of the Fed's meeting Tuesday but also an eighth at the next Fed meeting Oct. 2. ``It is still a very uncertain economic situation out there,'' said David Jones, chief economist at Aubrey G. Lanston & Co. in New York. ``It is difficult at this moment for the Fed to know when the rebound is coming.'' While most economists believe the Fed's upcoming actions will be the more traditional quarter-point rate moves, they did not rule out another half-point cut, especially if central bank policy-makers thought such a surprise move would lift Wall Street out its current doldrums. Private economists said at least a quarter point move on Tuesday was a virtual certainty, given recent statements by Federal Reserve Chairman Alan Greenspan and his colleagues, who have warned that troubles related to a pronounced yearlong economic slowdown are not over. ``They have pretty much locked in another quarter-point rate cut,'' predicted David Wyss, chief economist at Standard & Poor's Co. in New York. In an effort to keep the economy out of recession, the Fed has already cut interest rates six times since Jan. 3. The first five reductions were half-point moves, marking the most aggressive Fed easing since early 1982, when the Fed slashed rates to fight the country's worst recession since the Great Depression. At the Fed's last meeting on June 27, the Fed added a sixth rate cut, but the move was the more normal quarter-point reduction that the Fed has often employed under Greenspan, bringing the federal funds rate, the interest that banks charge on overnight loans, down to 3.75 percent. Those moves have pushed banks' prime lending rate, the benchmark for millions of consumer and business loans, to 6.75 percent, its lowest level in seven years. U.S. manufacturers issued a plea Monday for a half-point rate cut this week, saying such a move was needed to help alleviate a slowdown in sales that has already prompted them to eliminate 708,000 jobs. In a letter to Greenspan, National Association of Manufacturers President Jerry Jasinowski said the bolder half-point move was needed to counteract ``a sudden and unexpected deterioration overseas'' that was raising the threat of a global recession. The Bush administration is counting on lower interest rates plus the impact of nearly $40 billion in tax rebate money this year to boost consumer demand and provide greater strength in the second half of the year. Economists point to encouraging signs that an upturn may be imminent, including a report Monday that the Index of Leading Economic Indicators rose by 0.3 percent in July, the fourth consecutive monthly gain. The economy barely grew in the spring, managing only a 0.7 percent rate of increase in the gross domestic product, the poorest performance in eight years, and even that rate is likely to be lowered when the government revises the figure later this month. Top forecasters surveyed by Blue Chip Economic Indicators said they were looking for a slight rebound to growth rates of 1.7 percent in the current quarter July-September quarter and 2.8 percent in the final three months of this year. But since a rebound remains a forecast, analysts said they expect the Fed to cut rates again in October. ``Between now and Oct. 2 is a long time and no really knows for sure what will be happening then,'' said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. That would mean even lower short-term borrowing costs for consumers. However, analysts warned that a reviving economy may signal an end to declines in longer-term rates set by market forces. Rates for 30-year home mortgages dipped to 6.92 percent last week, but Sohn said home buyers probably will need to act quickly to get rates at that level. ``This is only the 11th time in the last 25 years that 30-year mortgage rates have fallen below 7 percent,'' he said. On the Net: Federal Reserve: federalreserve.gov