Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (10345)	12/12/2002 5:04:14 PM
From: stockman_scott	Read Replies (2) \| Respond to of 89467

-- Fed Saw Big Rate Cut Shortening Soft Spot -- By Jonathan Nicholson WASHINGTON (Reuters) - Members of the U.S. Federal Reserve's monetary policy-making panel decided on their jumbo half-percentage point rate cut in November as the best way to cut short a "soft spot" in economic growth, according to minutes of the meeting released on Thursday. "A relatively aggressive easing action could help to ensure that the current soft spot in the economy would prove to be temporary and enhance the odds of a robust rebound in economic activity next year," according to minutes of the Nov. 6 meeting of the Federal Open Market Committee. Some members also cited restrictive financial conditions, especially in bank lending, as another justification for the move. "The members agreed that monetary policy could do little to improve the performance of the economy in the near-term but some emphasized that a 50 basis point easing likely would feed through to some degree to market interest rates, with favorable implications for spending next year," the minutes said. And with inflation subdued, the panel believed that the risks of easing sharply were much less than the risks in not taking action if the economy continued to struggle. "A failure to take an action that was needed because of a faltering economic performance would increase the odds of a cumulatively weakening economy and possibly even attendant deflation," the minutes said. The FOMC ultimately voted 12-0 to cut rates by a larger-than-expected amount at the meeting and said the risks to the economy were balanced between inflation and weakness. There was less unanimity, however, on what is known as the "balance of risks" statement. Coming into the meeting, the panel had said the economic risks were tilted toward weakness. "In the view of many members, retaining the assessment that the risks were tilted toward weakness would raise the odds of an overreaction in financial markets," and lead them to expect more cuts, the minutes said. But it also noted "some members" were less worried about that possibility. While the FOMC members said fiscal policy has eased worries that a dwindling supply of U.S. Treasury debt could constrain Fed monetary operations, they also directed the staff to continue studying the use of mortgage-backed securities issued by the Government National Mortgage Association, "Ginnie Maes," for possible use "at some point in the future." In 2001, when large federal budget surpluses were forecast and before the economy went into recession, the Fed mulled how it might influence interest rates in the absence of U.S. Treasury securities, should the national debt be eventually repaid. Those worries have largely disappeared, though as the weak economy, the war on terrorism and tax cuts have pushed the government back into running annual deficits. "Fiscal policy developments made it clear that earlier concerns about a contracting supply of securities in the U.S. government securities market would not likely impose constraints on the (Fed) System's open market operations in the near term," the minutes said. The panel also said outright purchases of Ginnie Maes would present "a number of difficulties" and require extensive preparation. The FOMC also told Fed staff to discontinue its study of the possible use of foreign sovereign debt for similar purposes. At the FOMC's most recent meeting on Tuesday, the panel voted unanimously to leave rates steady and said there were signs the economy was moving out of its slump. (C) Reuters 2002. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world. 12-Dec-2002 20:31:09 GMT Source RTRS - Reuters News