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To: Boplicity who wrote (3375)	8/21/2001 7:42:40 PM
From: stockman_scott	Respond to of 13815

Chicago Economists on the rate cut... ____________________________________________ From the Crain's Chicago Business Newsroom Local economists question Fed cut by Ellen Almer • August 21, 2001 <<Tuesday's quarter-point interest rate cut by the Federal Reserve didn't come as a surprise to local economists, but some of them are questioning whether the cut is even necessary, as certain leading indicators show the economy may already be rebounding. The cut—the seventh so far this year—is "cosmetic," said Bernie Lashinsky, a Chicago-based economist. "It may make everyone feel good, but it's not going to be ground shaking," he said. In fact, a real economic upswing may have already started, with or without the cut. Mr. Lashinsky, a columnist for ChicagoBusiness.com, noted that certain key indicators—such as unemployment claims and automotive inventories—are leveling off or improving. As for those indicators that are continuing to lag, including inventory levels in other industries, Mr. Lashinsky said, "We are probably at the bottom," and that the negative data many people are referring to "is for June, and this is August." Diane Swonk, chief economist for Bank One Corp. in Chicago, agreed, noting that housing is up 13% over last year, "absolutely defying gravity," and that production has stabilized. "This ain't a recession," she said. She, too, was blase about the rate cut, noting that it likely had to be done to prevent a meltdown of the financial markets, but that such cuts are never an instant boost to the economy, because it takes six to nine months for their effects to be felt. "We're still waiting to see the effect of the Jan. 3 cut," she said. The Fed action brought the federal funds rate, a benchmark for short-term lending rates throughout the economy, to 3.5 percent, its lowest level since spring 1994. The central bank also chopped the discount rate—charged on direct Fed loans to commercial banks—by a quarter point to 3 percent. In fact, some experts are saying today's cut may be detrimental, since the economy might be humming along again by the time its effect is felt in half a year. "But it's a lot easier to bring the punch to the party than to take it away," Ms. Swonk said. "This is a very impatient market, it's unrealistic in terms of its expectations." Ms. Swonk said she believes the October economic data will be more positive.>>

To: Boplicity who wrote (3375)	8/21/2001 8:15:14 PM
From: stockman_scott	Read Replies (1) \| Respond to of 13815

FOMC Trivia : Most of the Fed's actions and words today were no surprise at all. But there were two minors items that will receive some attention due to the lack of anything else to talk about. First, there was one very slight change in the Fed's announcement vs its June announcement. Instead of noting weak expansion of consumption the FOMC said that household demand has been sustained. Big deal, right? Well, no, probably not. No one knows what consumer spending will do next, and that is in fact the $64K question. This slight change in wording probably doesn't reflect increased optimism, and even if it does, it could be blown out of the water with one weak retail sales report (Addition: a reader correctly noted that this line could be interpreted as increased pessimism as well, since now there is only reference to "sustained" demand rather than expansion). The other item that will be discussed is the so-called easing bias. Most market-watchers have forgotten that the Fed did away with the bias back at the beginning of 2000. They were tired of the market assuming that the bias suggested that an intermeeting move was likely or that a future move in the direction of the bias was a guarantee. They opted instead for a directive which noted the balance of risks. Instead of indicating a bias to ease or tighten, they now indicate whether they see the balance of risks weighted in the direction of inflation or recession, or weighted evenly. Of course, the market simply continued to label these three options as a tightening bias, easing bias, and neutral directive (some prefer the oxymoron neutral bias). But the Fed wanted only to convey its view of the economy, and that is indeed all that this statement has been. Some thought that perhaps the Fed would shift to neutral today, and that the continued easing bias was therefore meaningful. It wasn't. Those who understand that this is a balance of risks would also understand that it would have been absurd to argue that the balance of risks is now equally weighted between inflation and recession. Recession clearly remains the greater concern. This doesn't guarantee future Fed easing; it's just a statement of the obvious. If you're looking for hints as to the next Fed move, don't look in this Fed announcement. Look instead at upcoming economic reports - the Fed is waiting for those just like the rest of us. - Greg Jones, Briefing.com