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To: Frederick Langford who wrote (49115)	4/14/2002 9:11:42 AM
From: DebtBomb	Respond to of 208838

'Profitless Recovery' Fears to Limit Gains biz.yahoo.com

To: Frederick Langford who wrote (49115)	4/14/2002 7:35:52 PM
From: 2MAR$	Read Replies (2) \| Respond to of 208838

Greenspan May Not Answer Rate Question By Caren Bohan WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan and his colleagues have already dealt with the delicate task of preparing financial markets for a possible rise in interest rates. ADVERTISEMENT Now, the big question is, when will that increase occur? For clues to the all-important timing of a borrowing cost increase, investors will scour Greenspan's Capitol Hill testimony on Wednesday. But analysts believe the Fed chief will offer little in the way of an answer. Economists predicted they may at least have cause for relief at the end of the day, since the tenor of current economic data and the ongoing turmoil in the Middle East are likely to keep Greenspan from signaling that a rate increase is imminent. However, beyond that, the ever-elusive Fed chief may do little to lend clarity to the timing debate. ``It probably will be an 'on the one hand, on the other hand' testimony,'' said former Fed vice chairman Alan Blinder, who is a Princeton University economist. Greenspan is scheduled to appear before Congress' Joint Economic Committee at 10 a.m. EDT (1400 GMT) Wednesday to discuss ``Monetary Policy and the Economic Outlook.'' His testimony comes less than three weeks before the May 7 meeting of the Fed's policy arm, the Federal Open Market Committee. The last time Greenspan gave a major economic address was on March 7, when he declared that the recession that began the previous March was over and that an expansion was ``well under way.'' Shortly after that, on March 19, the FOMC dropped its long-held warning about a recession and declared that the economy was growing at a ``significant pace.'' Economists saw the FOMC statement and Greenspan's March 7 testimony as laying the groundwork for an eventual increase in the federal funds rate. When the Fed was in an aggressive recession-fighting mode last year, the funds rate, which governs overnight loans between banks, was slashed to a 40-year low of 1.75 percent. Economists say there is a need to ``normalize'' the funds rate, which would involve bringing it higher to avoid a situation where bargain borrowing costs begin to act like grease on a fire, prompting the economy to overheat. JUNE, AUGUST OR LATER? While some in financial markets had been zeroing in on May 7 as a possible time for the Fed to begin boosting interest rates for the first time in two years, that talk fell silent as a run of robust data gave way to softer reports, leading to a murkier outlook for the economy. ``The second quarter is starting on a weakish note,'' said Roger Kubarych, a New York-based economic adviser to Germany's Hypo-Vereins Bank. If the Fed stands pat on May 7, the FOMC meetings on June 25-26 or Aug. 13 are other possible dates when the Fed might start increasing rates. Several analysts said tame inflation gives the Fed some leeway to put off rate rises until at least June, or even later. In the year ended in February, the Consumer Price Index rose a slight 1.1 percent. It was up a moderate 2.6 percent in the core index, which strips out volatile food and energy costs. Princeton's Blinder said that at a time when growing Middle East turmoil adds a new element of uncertainty to the economic picture, Greenspan will want to avoid getting pinned down on the economic and rate outlook and won't want to throw any curve balls to financial markets. ``Greenspan has not the slightest reason to try to shake the markets,'' said Blinder, who predicted the tone of the Fed chairman's remarks would be ``mellow.'' The Mideast conflict -- which worsened with Friday's suicide bombing in a crowded Jerusalem market -- have so far not dealt a big blow to the U.S. stock market but if oil prices see a large and sustained spike, both the market and the nascent U.S. economic recovery could face risks. In addition to reticence about stirring up financial markets, Fed watchers said the economic data alone provide ample reasons for Greenspan to walk a fine line in his testimony. For example, the Commerce Department said on Friday that retail sales grew a mere 0.2 percent in March, a number that fell short of the expectations for a 0.4 percent gain. And the University of Michigan's preliminary consumer sentiment index for April fell to 94.4 from 95.7 in March, in contrast to private economists' expectations it would rise. Even before such data, the tenor of most comments from members of the FOMC has been cautious. ``Now over the remainder of the year, I think there is certainly far less certainty in terms of the strength of the recovery,'' Thomas Hoenig, president of the Fed Bank of Kansas City, told a business group on Thursday. Greenspan himself in his March 7 testimony included some caveats to his declaration that the expansion was plowing forward, citing business spending as a concern. ``I think Greenspan is going to strike a pretty balanced tone. That is what we've seen coming out of other Fed officials,'' said Richard Berner, chief U.S. economist at Morgan Stanley in New York.