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To: Maurice Winn who wrote (16037)	10/6/1998 12:56:00 PM
From: dougjn	Respond to of 152472

"I think we should realize that we are living in an extraordinarily difficult time in world financial markets," William McDonough, president of the New York Federal Reserve Bank, said in an appearance Monday before the Institute of International Bankers. "I believe that we are in the most serious financial crisis since World War II -- and one that has a propensity to get worse rather than better," he added. In the past few weeks, the global turmoil has weakened prospects for growth by "undermining the favorable set of financial conditions that were so important in promoting strong growth over the past couple of years," Federal Reserve governor Laurence Meyer said in a speech to the National Association for Business Economics. ***** Mr. Meyer also cautioned against too much hope that more Fed rate cuts would finally stabilize world markets. "U.S. monetary policy has a better ability to shield the U.S. economy from global distress than to counter the powerful recessionary and deflationary forces in the world economy," he said. Fed easing could help other countries for a time, but, he added, "this respite will be wasted if the countries in crisis ... do not take appropriate policy actions to support their own economies." Mr. Meyer didn't directly say whether the Fed planned to continue cutting rates. But he remarked on how surprised he was about how little the forecasts of future economic growth by private forecasters have changed in recent months, despite the worsening condition overseas and in the U.S. More and more, forecasters are counting on an easing of monetary policy to keep the expansion alive. Economists are assuming, Mr. Meyer said, that "adjustment in monetary policy will be perfect, and that growth next year won't be affected." He added: "All I can say is that we will work very hard to live up to your expectations." Indeed, the business-economists organization released its latest consensus forecast Monday and the outlook remained upbeat. The economists expect gross domestic product to expand by 2.2%, adjusted for inflation, next year, down from 3.4% this year -- the exact same forecast given in May, well before American markets took another turn for the worse. Four-fifths of the panelists said they expected that the next recession wouldn't occur until the year 2000 or later. (More from today's online Wall St. Journal.) I.e., the NYC Fed isn't sure it can prevent recession in the U.S., much less continued bad problems overseas (and for companies that operate overseas.) And Street economists HAVE NOT yet reflected the likely sharp slowdown. Much less recession. The yield curve is clearly projecting at least a mild U.S. recession. As is the absolute rate of the 30 yr. Long Bond. The stock market hasn't yet caught up. I agree that the large caps which have least reflected these concerns are the most vulnerable here. The panic will get considerably worse. THAT will be the time to jump in with both feet again. IMHO. Doug