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To: ild who wrote (239648)	5/8/2003 2:22:13 PM
From: ild	Read Replies (2) \| Respond to of 436258

+DJ FOMC Minutes: More Disinflation A `Distinct Possibility' DJ FOMC: Subdued Growth For A Long Time Cannot Be Ruled Out DJ FOMC: Business Investment Seen Subdued Over Near Term *DJ FOMC Saw Signs of Home Overbuilding In Some Regions DJ FOMC Minutes -2: Rising Concern About Danger Of Deflation By Joseph Rebello Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--The Federal Reserve's decision Tuesday to signal it will fight to banish any prospect of deflation appears to have been spurred by worries about a marked drop in the country's inflation rate since the start of the year, a new document shows. The document, minutes of a March 18 meeting of the Fed's policymaking Open Market Committee, show the committee was more worried about the possibility of disinflation on that day than it was at its previous meeting, when it saw "modest further disinflation" on the horizon. At the March meeting, the FOMC dropped the word "modest" from its assessment. "Members saw further disinflation in core prices as a distinct possibility over the next several quarters," the minutes, published Thursday, report. Since December, the core Consumer Price Index - which excludes typically volatile food and energy items - has declined by three-tenths of a percentage point to 1.7%, the lowest level since the mid-1960s. Most economists expect a further decline this year. The Fed, eager to prevent a bout of deflation such as the one that has stalled Japan's economy for more than a decade, has been fretting about the declining U.S. inflation rate at least since September and has discussed the subject in every one of its meetings since then. But this week the Fed expressed the worry in its policy statement, saying it would work to prevent an "unwelcome substantial fall in inflation." That marked a historic shift for the central bank, which has spent the last six decades working to lower the country's inflation rate. Analysts say the new focus on deflation suggests the Fed may cut interest rates for the 13th time in two years next month and postpone increases in interest rates at least until the middle of 2004. "The threshold for easing (interest rates) is lower than it was before," Laurence Meyer, a former Fed governor said in an interview this week. He said the drop in the inflation rate so far has wiped out much of the benefit of the Fed's 50-basis-point cut in interest rates last November, since inflation-adjusted interest rates are now nearly as high as they were six months ago. In their deliberations in March, the Fed opted not to make its customary statement about the "balance of risks" to the economy because the outlook had become too clouded by the war in Iraq, which began just days after the meeting. The minutes show committee members had no trouble making that decision. "Most members believed that the major uncertainties surrounding the geopolitical situation made it impossible to assign reasonable probabilities to plausible alternative outcomes and that any effort to do so would provide a misleading impression of the committee's confidence and knowledge about the economic outlook," the minutes report. The committee, in any case, had little cause for optimism. "Widespread indications of a strengthening economy near the end of last year through the end of the first part of this year had given way to a disappointing economic performance more recently," they said, according to the minutes. Some of that slowdown reflected war jitters, they said, but "it was also possible that part of the recent weakness might reflect underlying economic conditions. "Beyond the near term, members acknowledged that relatively subdued growth for a time could not be ruled out, but many commented that the conditions were in place for a strengthening expansion," the minutes report. They also were pessimistic about the prospect of a near-term rebound in business investment, which Fed Chairman Alan Greenspan has said will be crucial for a sustained economic recovery. "A variety of factors likely would induce business firms to continue to hold back on new investment, at least over the near term," the policymakers argued, according to the minutes. "Indeed there was as yet no persuasive evidence that business fixed investment would provide the needed support for the strengthening in overall economic activity." The policymakers also fretted about "indications of (house) overbuilding in some parts of the country, notably of multifamily housing," although they believed low mortgage rates would ensure "robust homebuilding activity." Some FOMC members suggested the Fed may need to cut interest rates if the climate of economic uncertainty persists. They argued "the committee might well need to adjust its policy in circumstances that continued to be characterized by a substantial degree of uncertainty," according to the minutes. -By Joseph Rebello, Dow Jones Newswires; 202-862-9279; Joseph.Rebello@dowjones.com (END) Dow Jones Newswires 05-08-03 1400ET