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To: Ian@SI who wrote (7133)	10/15/1998 10:36:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 10921

Fed Rate Cut Timing Surprises Market, Raises Questions By Barbara Etzel and Bill Watts FWN Washington Bureau Washington-Oct. 15-FWN--The Federal Reserve's decision to cut interest rates Thursday caught markets off guard and may indicate deep-seated concerns among policy-makers regarding the threat posed to the U.S. economy by troubles abroad, analysts said. In a statement, the Fed said, "Growing caution by lenders and unsettled conditions in financial markets" are likely to slow the U.S. economy in the future, providing a backdrop that warranted further monetary easing "to sustain economic growth in the context of contained inflation." The U.S. dollar plunged and the stock market soared on the news, with the Dow Jones Industrial Average gaining more than 300 points on the day. But analysts said the Fed's statement and the timing of the move may indicate Fed Chairman Alan Greenspan and fellow policy-makers are even more worried than previously thought about the impact of the deepening global economic crisis on credit availability and financial markets in the United States. "The timing surprised most people," said Dan Seto, senior economist with Nikko Securities International. However, most people were open to the possibility of an inter-meeting move. "They wouldn't move unless they are really, really concerned about current conditions," said Kevin Harris, an international economist at MCM Currencywatch. The Fed's move indicates it was concerned about credit conditions tightening, Harris said. The question for those in the market is whether the Fed acted in a pre-emptive move to promote liquidity or whether it acted in response to big problems that people are not yet aware of, Seto said. That assessment will provide the answer to what the Fed's next move is. If this was a pre-emptive move, then the Fed can afford to wait. However, if it acted to address a bigger problem, then more aggressive easing is likely, Seto said. Some economists viewed the move as unnecessary, and argued it may serve to unduly spook investors. "Our sense is that moving like this between meetings is not necessary and may cause people to be a bit more concerned about how worried the Fed is perceived to be," said Rick Egelton, deputy chief economist at the Bank of Montreal. Thursday's move marks the first time the Fed has altered rates between regular Federal Open Market Committee policy meetings since 1994. The next meeting is set for Nov. 17. Anticipation of a possible inter-meeting rate cut was underscored by Greenspan's remarks to business economists last week. The Fed chairman gave a solid indication he believed it possible for the global economic and financial crisis to push the U.S. economy into recession next year, Fed watchers said. Greenspan warned that policymakers needed to be "especially alert." But in the same address, he also argued that the United States was "far short" of a credit crunch and that the domestic economy remained sound. Overall, Greenspan's remarks were seen leaving the likely timing of a rate move as murky. U.S. officials have been increasing the tone of their comments about the risks to the United States from the global economic turmoil. On Wednesday, U.S. Deputy Treasury Secretary Lawrence Summers said that U.S. financial markets are now being seriously affected by the global turmoil. "By wide agreement, what used to be called the Asian financial crisis is now a global financial market problem as serious as any the international community has faced since World War II," Summers said in a Philadelphia speech Wednesday. The U.S. dollar plummeted against the Japanese yen and the German mark after the move. The dollar dropped more than 3 yen to Y115.55 and was quoted at DM1.6122 versus the D-mark, a loss of almost 2.56 pfennigs on the day. The dollar is falling apart, Harris said. While price screens may not reflect it, dollar/mark has traded as low as DM1.61 in the interbank market, he said. Less liquid conditions in the afternoon forex market likely may have undercut the Fed's desire to limit market turmoil, he said. Mike Malpede, senior foreign exchange analyst with Refco Inc. in Chicago, said the timing of the move was "somewhat a surprise" and is likely to lead to further pressure on the dollar in overseas trading. Harris said expectations of more easings to come will likely serve to keep the dollar under pressure over coming sessions. (c) Copyright 1998 FWN futuresmag.com