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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (48372)	3/6/2002 9:41:30 AM
From: Murrey Walker	Read Replies (1) \| Respond to of 65232

Question...is the tail wagging the dog or....?

To: Jim Willie CB who wrote (48372)	3/6/2002 11:42:36 AM
From: stockman_scott	Respond to of 65232

Fed's Santomero: Recovery May Be in Works By Ross Finley Wednesday March 6, 11:06 am Eastern Time NEWTOWN SQUARE, Pa. (Reuters) - Federal Reserve Bank of Philadelphia President Anthony Santomero said on Wednesday the stage was set for a U.S. economic recovery and that monetary policy could shift as the rebound gains steam. But implying that the Fed will keep interest rates at a 40-year low for at least the next several months, Santomero said risks of a sub-par recovery remain, with consumers unlikely to accelerate their already robust spending and the outlook for a pickup in business investment uncertain. ``I am cautiously optimistic about the U.S. economy in 2002,'' Santomero said in a speech delivered to the Main Line Chamber of Commerce outside Philadelphia, taking heart from a recent batch of ``surprisingly strong'' economic reports. ``As we see evidence that the recovery has taken hold and is building momentum, risks will become more balanced. Monetary policy must then shift gears, moving from its current stance, geared to stimulating a recovery, to a more neutral stance,'' he said. The Fed slashed interest rates 11 times in 2001 to a 40-year low of 1.75 percent in a bid to reverse the economy's first recession in a decade. Santomero's remarks were one of the strongest signals from a Fed official this year that the central bank is laying the groundwork to alter its policy stance from one where the economy is at risk of deeper weakness -- Fed code for a need for lower rates -- to one in which the risks of weakness and rising inflation are in balance. Financial markets expect the Fed to begin raising benchmark interest rates by the end of June, but Santomero stressed to reporters that it was too soon to say when or by how much the Fed would increase interest rates. ``We want to be confident that the recovery is sustainable and built on a strong foundation. To assure this, all forces necessary for a balanced recovery must align. This should occur over the next quarter or so,'' Santomero said. Some analysts said Santomero's remarks were a possible signal that the Fed's rate-setting Federal Open Market Committee (FOMC) could adopt a ``neutral'' policy stance as soon as its next meeting on March 19. ``He's a voting member of the FOMC and many observers acknowledge that the Fed tries to guide investors' expectations before a policy gathering,'' said William Sullivan, director of money market research at Morgan Stanley. ``It's conceivable that the Fed will adopt a neutral policy stance,'' he said. Such a move would be a precursor to future interest rate increases. MODERATE GROWTH, TAME INFLATION Santomero forecast that the U.S. economy would post growth rates in the range of 3 to 4 percent in the second half of 2002, with the unemployment capped around 6 percent, compared with 5.6 percent in January. He said such a moderate pace of growth should keep inflationary pressures under control. Santomero said a prime area of concern in coming months was the prospect that pressure on corporate profits and a glut of factory capacity left idle during the recession will continue to pinch business investment. ``Business investment will have to turn around and begin growing again if we are to sustain a recovery and achieve a healthy pace of growth,'' he said. He said consumer spending, which drives about two-thirds of U.S. economic activity, and sales of homes and cars were likely to remain ``solid.'' But he said the lack of pent-up consumer demand meant Americans were ``less motivated to go on a shopping spree.'' Speaking two days before the government releases its crucial employment report for February, Santomero said there were signs that labor markets were beginning to firm. ``It is important that employment begin to increase and employment prospects to brighten in order to sustain the growth in consumer spending that we have been observing,'' he said. Economists polled by Reuters expect the economy added 13,000 jobs in February compared with a loss of 89,000 jobs in January. A positive payrolls number would be the first time the economy added jobs since July 2001.