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To: Softechie who wrote (1901)	2/27/2002 12:36:24 PM
From: Softechie	Read Replies (1) \| Respond to of 2155

CAPITAL VIEWS: AEI's Makin Goes Vs Tide On Econ Outlook DOW JONES NEWSWIRES (This article was originally published Tuesday.) By John Connor A Dow Jones Newswires Column WASHINGTON -- Here's some food for thought about the economic outlook from American Enterprise economist John Makin in advance of eagerly awaited testimony Wednesday morning by Federal Reserve Chairman Alan Greenspan on monetary policy and the economy. Makin, in a new "AEI Economic Outlook" essay, reviews the success of policymakers in dealing with the financial systemic risk events of 1998 (the Russian default and Long-Term Capital Management collapse) and the terrorist attacks of last Sept. 11 before warning that the economy faces new trials in the period ahead. His bottom line outlook on interest rates is that another 75 basis points of rate cuts appears more likely than the 75 basis points of rate increases now priced into the futures market for the end of the year. Why? Well, Makin says among many other things that "going foward, the unexpected 'strength' of consumption and government spending during the fourth quarter presages weakness. "Spending far in excess of income growth on goods offered by producers anxious to dump inventories will moderate as unemployment continues to rise and income growth slows," he continues. "Federal government spending will continue to rise, but spending by state and local governments will decelerate. "If the contributions to growth of government spending and consumption were set at their average levels for the past 10 years, fourth quarter GDP growth would have been minus 2.5% rather than the 0.2% reported," the economist goes on. Makin says calculated growth during the first half of this year will be supported arithmetically by the slowdown in the inventory selloff. "But an accompanying slowdown in the growth of consumption and government spending coupled with continued weakness of net exports and investment will probably leave growth flat," he says. "This outcome, in contrast with an expectation that growth will reach a 3% to 4% annual rate by the second quarter, would obviously be a surprise to markets and members of the Federal Open Market Committee," Makin avers. "Still, another 75 basis points of rate cuts by the Fed seems more likely than the 75 basis points of Fed rate increases now priced into the futures market for the end of the year." Turning to the stock market, Makin says it's "hard to be optimistic about the outlook for earnings growth in American companies because of the disinflationary and deflationary impulses that persist in both the U.S. economy and the global economy." At this point, Makin concludes, "the stock market does not share the facile assumption of most analysts that a sustainable U.S. economic recovery is at hand." He says the stubbornly high level of long-term U.S. interest rates also is problematic both for the stock market and for consumption and investment in the U.S. Wrapping up his gloomy assessment, Makin says that "despite its remarkable record of success in turning bad news shocks into good news for the economy, the Federal Reserve crisis management machinery is running nearly on empty," with little ammunition now available to the Fed to turn bad news into good news once again. Subscribers can find Capital Views on: Telerate page [4021] Dow Jones Newswires by searching the code N/POV Bloomberg by entering NI POV Reuters by entering keyword Capital Views (John Connor, a veteran observer of the financial markets and the Washington scene, is Washington bureau chief for Dow Jones Newswires. He can be reached by e-mail at John.Connor@DowJones.Com) Updated February 27, 2002 8:00 a.m. EST