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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (8762)	10/15/1998 9:45:00 PM
From: MythMan	Read Replies (1) \| Respond to of 86076

Filed at 7:28 p.m. EDT By The Associated Press WASHINGTON (AP) -- The Federal Reserve moved Thursday for a second time in just over two weeks to protect the U.S. economy from a spreading global crisis, cutting two key interest rates by a quarter-point. The surprise cuts ignited an explosive rally on Wall Street. The Dow Jones industrial average ended the day up 331 points, its third-biggest point gain in history. Bond prices soared as well. Banks responded immediately by cutting their prime lending rates, the benchmark rate for millions of business and consumer loans, such as home equity loans. The prime rate was reduced by a quarter-point to 8 percent, its lowest level in four years. The market euphoria reflected a belief that the unexpected Fed move means more rate cuts are imminent as the central bank tries to keep global economic turmoil from dragging the United States into a recession, private economists said. Thursday's cut, less than three weeks before the congressional election, marked the first time in four years the central bank has changed interest rates between regular meetings of its policy-setting Federal Open Market Committee. ''This cut is to head off a recession at the pass,'' said Allen Sinai, chief economist at Primark Global Economics. ''The stakes are high. If the United States goes, the world goes. If the United States stands, the world stands.'' The Fed announced it was reducing its target for the federal funds rate, the interest that banks charge each other on overnight loans, to 5 percent from 5.25 percent. It cut its discount rate, the interest the Fed charges to make loans directly to banks, by a quarter point to 4.75 percent. The central bank moved on Sept. 29 to cut the funds rate by a quarter point, its first interest rate reduction in nearly three years. The September move sent stock prices plunging because disappointed investors feared Federal Reserve Chairman Alan Greenspan and his colleagues would be too tentative in their efforts to fight off a recession, repeating mistakes that brought on the country's last recession in 1990. But Greenspan sought in a speech last week to provide reassurance that the central bank was alert to the growing dangers. He stressed that it would seek to prevent a ''fear-induced psychological response'' from derailing the U.S. economy. Greenspan said the drop in stock prices since their July high had wiped out $1.5 trillion in Americans' wealth, a loss that could cause consumers to cut spending. He also expressed worries that banks were beginning to cut back on new loans. In a brief statement explaining Thursday's action, the Fed said it moved because of ''growing caution by lenders and unsettled conditions in financial markets more generally.'' Many analysts had expected the Fed to wait until its next FOMC meeting on Nov. 17 to cut rates again and were caught by surprise by Thursday's reduction. Greenspan probably won support from his colleagues in a telephone conference call, analysts said. Many analysts believe the third rate cut could come as soon as the Fed's November meeting, and could be followed by even further reductions if the economy continues to slow. ''Their movement between meetings clearly shows they are getting darned scared,'' said David Wyss, economist at Standard & Poor's DRI. Wyss said the economic data that may have pushed the Fed to move was Wednesday's report that retail sales outside of autos were up a weak 0.1 percent in September. Consumer spending accounts for two-thirds of total economic activity and is the main bulwark expected to keep the U.S. economy on track -- given that manufacturers and farmers are suffering from the loss of overseas export markets because of the economic turmoil that began in Asia 15 months ago, spread to Russia in August and is now threatening Latin America. The Labor Department reported Thursday that inflation at the wholesale level jumped by 0.3 percent in September, the largest increase in a year. But economists dismissed the increase as a one-time fluke that did not change their view that faltering world demand will continue to restrain inflation in the months ahead. Federal Reserve Governor Edward Gramlich, speaking Thursday before the Fed's announcement, said with unemployment hovering near a three-decade low, the Fed has ''been looking pretty hard for evidence of accelerating inflation,'' but so far has not found it. While the administration is counting on a solid economy to keep President Clinton's job approval ratings high, the White House repeated its usual response that it respected the Fed's independence and would not comment directly on the rate cut. ''Our philosophy on the American economy is that we should do our job, which is keeping fiscal discipline, investing in the American people and opening world markets, stabilizing the global economy,'' said White House adviser Gene Sperling.