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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (22967)	8/22/2002 5:44:54 AM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 74559

online.wsj.com Fed Policy Makers Signal Another Cut Isn't Likely By BOB DAVIS Staff Reporter of THE WALL STREET JOURNAL Three Federal Reserve regional bank presidents damped expectations that the Fed is poised to cut interest rates soon, delivering fairly upbeat economic assessments. San Francisco Fed President Robert Parry said Fed policy is "quite stimulative right now." Philadelphia Fed President Anthony Santomero called the policy "appropriately supportive," while Chicago Fed President Michael Moskow said the Fed "cannot -- and should not -- try to smooth out every bump" in the economy. The comments were the first public statements from the Fed since last week's decision to hold short-term rates steady. After the three Fed officials delivered their assessments in speeches in different sections of the country, financial markets downgraded the chance of a rate cut. By late Wednesday, markets were putting just 62% odds on a quarter-point cut in the Fed's short-term interest-rate target by year end, compared with 78% Tuesday. Messrs. Parry, Moskow and Santomero are all considered centrists with respect to monetary policy. Rory Robertson, an interest-rate strategist at Macquarie Equities, a New York investment bank, said short-term rates were already so low the Fed is unwilling to cut them absent a clear deterioration in the economy. Partly that is because a further cut could spark fears of inflation and, conversely, lead to higher rates on long-term bonds. At a policy meeting last week, the Fed left its target interest rate at a 41-year low of 1.75% but said risks are now tilted toward economic weakness, rather than being balanced between weakness and inflation. That suggested that evidence of a pronounced weakening in the economy or a severe bout of stock and corporate-bond market turmoil could prompt another rate cut. While appearing to play down such a likelihood, the regional Fed presidents nonetheless enumerated the risks to the economy. Mr. Santomero pointed to stock-market volatility, which could undermine consumer confidence; reduced stimulus from government spending, especially fiscally pressed state and local governments; and weakening economic conditions in Europe and financial crises in Latin America. Mr. Moskow added corporate scandals to the list because they added "skittishness to an already uncertain business climate" and "have undoubtedly raised the cost of financing new investment." But Mr. Santomero played down the significance of these weaknesses. "These factors are all worth watching," he said. "But none appear to be of a magnitude to threaten the recovery." In remarks after his speech, Mr. Santomero said he believed growth would pick up during the next few quarters, as manufacturing picks up and employment levels stabilize. Business investment hadn't yet picked up, he said in his speech, but that often lags behind other indicators. In the longer term, Mr. Santomero said, the economy could grow at 3% to 4% annually "on a sustained basis." That is largely because of the prospect of improvements in productivity, he said, which "will provide a strong incentive for businesses to increase their investments in new technologies." Productivity is a measure of how much firms can produce for an hour of labor; the more that firms are convinced that they can increase productivity, the more they may be willing to invest again in computer and telecommunications technologies that underlie such gains. Write to Bob Davis at bob.davis@wsj.com Updated August 22, 2002 KJC