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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Karin who wrote (8511)	10/23/1998 2:35:00 AM
From: Jeffrey D	Respond to of 42834

Rate cut explained by the Fed folks. Jeff << -------------------------------------------------------------------------------- Fed Official Explains Rate Cut -------------------------------------------------------------------------------- WASHINGTON (AP) -- General financial market turmoil, not any sense of a specific impending disaster, led Federal Reserve policy-makers to reduce short-term interest rates last week, a Fed board member said. Central bank officials surprised Wall Street on Oct. 15 with the second interest-rate reduction in 16 days because they reasoned ''it is probably better to be ahead of challenges, not reacting to events,'' Roger W. Ferguson Jr. said in a speech Thursday. Also Thursday, Alice Rivlin, the Fed's vice chairwoman, said the Fed is continuing to monitor financial markets for any signs of a credit crunch. The Fed is ''watching all signs,'' she said after a speech at Buffalo State College, Dow Jones News Service reported. In response to an audience question, she noted the U.S. economy still was showing strength when the Fed first decided to lower interest rates in September but that ''things have gotten a little worse since then.'' When asked if there were specific conditions that changed between the September meeting and the additional rate cut in October, Rivlin declined to comment. The October cut had elicited speculation that more bad news was imminent, such as last month's near collapse of the hedge fund Long Term Capital Management L.P. But, Ferguson said, ''We based our decision on our analysis of the general tenor of financial markets and their likely effects on the economy, not on foreknowledge of a major financial disaster, as some have speculated.'' The cut ignited a recovery in stocks, pushing the Dow Jones industrial average higher for seven straight sessions, the longest positive streak in more than a year. It closed at 8,533 Thursday, up 14 points from the day before and nearly 600 since the start of the rebound. During the seven weeks before the rate cut, stocks slid sharply as spreading weakness among U.S. export customers pushed the American trade deficit to record highs. The Labor Department said Thursday the number of Americans filing applications for unemployment checks jumped last week for the third week in a row. But another report showed U.S. homeownership hit a record over the summer because of plentiful jobs and global financial problems that pushed mortgage rates to a 30-year low. A seasonally adjusted 318,000 Americans claimed jobless benefits, the most since mid-July. In three successive weeks, initial unemployment claims have risen substantially from a 5 1/2-month low of 290,000. Meanwhile, the U.S. homeownership rate jumped to 66.8 percent in the July-September quarter, up from 66 percent in the April-June quarter, the Department of Housing and Urban Development said. That translates into 69.1 million American families owning their homes, up from 68.3 million the quarter before. Low mortgage rates -- below 7 percent for 19 consecutive weeks -- have made home-buying more affordable. The average rate on 30-year mortgages fell to 6.73 percent this week, from 6.90 percent the previous week, Freddie Mac, the mortgage company said. Two weeks earlier, the average reached a 31-year low of 6.49 percent. Copyright © 1998 Associated Press Information Services, all rights reserved. --------------------------------------------------------------------------------