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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Bonnie Bear who wrote (9380)	11/25/1997 6:07:00 PM
From: Sam Citron	Read Replies (3) \| Respond to of 18056

Bonnie, Your friend at dim whitted moron stanley may have it backwards. Tuesday November 25, 10:49 am Eastern Time Asian crisis resurrects Fed easing idea -- experts By Jose Paulo Vicente NEW YORK, Nov 25 (Reuters) - A financial crisis in Asia and prospects of a global economic slowdown have resurrected an idea long forgotten on Wall Street: the possibility of a monetary policy easing in the United States. Analysts said a combination of recent events -- a deep financial crisis in Southeast Asia, higher import tariffs in Latin America, and a slew of banking failures in Japan -- is likely to take a toll on growth and dampen U.S. exports. Slower growth coupled with forecasts of falling inflation were expected to provide the Federal Reserve with the right blend of ingredients for a possible easing of monetary policy sometime next year, pundits said. The move would be seen as an attempt to extend credit availability to boost consumer purchases of goods to soak up a possible surfeit of manufactured goods. A quarterly survey of professional forecasters conducted by the Federal Reserve Bank of Philadelphia showed Monday that expectations for average consumer inflation for 1998 dropped to 2.6 percent against 2.8 percent in the previous survey. ''I think the next move by the Fed will be an easing,'' said Lawrence Chimerine, managing director at the Economic Strategy Institute, a Washington, D.C.-based think tank. ''Inflation is not likely to be a factor in Fed policy for the foreseable future ... and secondly, as the economy slows down next year and our trade deficit rises, that would provide an opportunity for the Fed to ease,'' he added. Chimerine said he expected the Southeast Asian woes to widen the U.S. trade gap by some $50 billion in 1998, which would shave half a percentage point from the nation's GDP growth. The economist added that he sees the Fed lowering its target for the federal funds rate -- currently at 5.50 percent -- ''sometime next summer.'' Also, analysts said long-term interest rates in the United States were expected to face downward pressure near term as investors continue to scuttle away from Asian investments and run into U.S. fixed-income assets. ''The flight-to-quality element is likely to continue to put some downward pressure on long- and medium-term rates here,'' said the head of the money market desk at a major U.S. investment bank. ''This is likely to take some of the burden off the Fed, so I think that for now they are going to be on hold. But we believe the next change in policy will be an easing, probably next year,'' he added. Pundits preaching the gospel of lower rates are generally the same ones who, just a few months ago, were touting the ''new paradigm'' -- the notion that stiffer global competition and higher productivity would put an indefinite lid on inflation. The ''Easing-Will-Be-The-Fed's-Next-Move'' Theory appears as an aftermath of the new paradigm, analysts said. Those experts argue that higher productivity and falling prices could produce a ''supply shock'' in the economy at a moment when global demand is shrinking. Such a phenomenon, if true, was expected to prompt the Fed to ease monetary policy in an effort to finance purchases of the expected excess supply through a cheaper credit policy. That is the theory. But at this point, when the magnitude of the events in Southeast Asia and Japan is still mostly unclear, some analysts said a Fed easing was just a forecasting exercise since the latest U.S. economic data do not warrant lower rates. Au contraire, the current numbers, if anything, are supportive of higher rates in an effort to curb a rapidly expanding economy, and several analysts on Wall Street still believed that was exactly what was going to happen next. ''Excess supply, deflation seem to be the current buzzwords right now,'' said Wayne Ayers, chief economist at Bank of Boston. ''But I just don't think it's a realistic problem.'' Ayers said he believed the Fed has most likely retained its tightening bias, adding that he expected the central bank to tighten monetary policy one more time in February. Some analysts said they did not buy the idea of falling inflation in 1998, saying higher services and higher wages were likely to offset, or even supress, any drop in the consumer goods prices. ''If you listen to the Fed, you know that what they pay attention to is the broad inflation indicator, not only the prices of goods,'' said Raymond Worseck, chief economist at A.G. Edwards & Sons Inc. Worseck said he expected tight U.S. labor markets to boost wages in 1998 and contribute to increased consumer prices. The U.S. jobless rate is currently 4.7 percent. SC