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To: Len Giammetta who wrote (384)	11/14/1998 1:56:00 PM
From: Len Giammetta	Respond to of 805

<Off Topic> RE: This weeks Fed action... inaction?! Can stock market keep rising without Fed help? By Pierre Belec NEW YORK (Reuters) - Stuck between a rock and a hard place. It's the tune they're singing at the Federal Reserve. The master mechanics of the economy meet Tuesday to guide the course of interest rates. The experts say there will be no room for errors. The stock market has taken off like a bottle rocket on the bet the Fed will keep lowering interest rates, which will bring down the cost of borrowing for things ranging from home mortgages to corporate debts. Fed Chairman Alan Greenspan and his gang of 12 bankers will be at center stage of this high stakes drama. A lot could turn sour if they make the wrong choice. The trick for the Fed is to convince financial markets that there is a light at the end of the tunnel and the economic problems are being worked out of the system. The U.S. economy is weakening and one-third of the world is in recession or faces some rough times and one solution is to make more money available. Most people expect the Fed to lower the key federal funds rate -- the interest rate banks charge each other for overnight loans -- by another quarter point to 4.75 percent. ''This is high-stakes risk management,'' said Allen Sinai, chief global economist at Primark Decision Economics. ''The stock market has been counting on another rate cut and it will be vulnerable to a sell-off if the Fed does nothing to meet investors' expectations. ''Right now, the pendulum is narrowly tipped on the side of standing back to see what happens if rates are kept unchanged,'' said the Fed watcher. For nearly two months, stocks have risen, buoyed by a diet of lower interest rates that have injected new confidence in the shaky market. The Dow Jones industrial average climbed more than 1,000 points in September and October with the help of two cuts of a quarter point each in interest rates. The market has soared on the heels of a bone-jarring 1,800-point fall in late summer as the weak global economy slammed U.S. corporate earnings, and fear grew that the contagion was hurting the American economy. The danger is that the central bank could shock Wall Street and unleash a head spinning market plunge if it keeps interest rates unchanged at Tuesday's meeting of the policy-setting Federal Open Market Committee. Most experts say the last two interest cuts have relieved pressure on financial markets. ''The Fed has done its work without over-insuring stock market investors against the risk from the global economic problems,'' Sinai said. While the outcome of the FOMC meeting was a close call, Sinai was betting that the Fed will hold off from lowering again, preferring to keep its powder dry and reserve the next interest rate shot until December. ''The Fed will accept the risk of disappointing the financial markets,'' he said. The last time the Fed faced such a predicament was in 1994, when central bankers saw the ghosts of inflation at a time of tremendous stock market volatility. ''Back then, people knew the Fed was going to raise interest rates, but we did not know how many times, or by how much,'' Sinai said. ''The Fed wound up raising rates from 3 percent to 5.75 percent, virtually doubling over nine months,'' he said. ''But the tightening was done to prevent an inflation problem that never showed up.'' So much for Fed wisdom and its forward looking policy. Now the Fed's goal is to prevent the economy from going into the soup. The experts say the central bankers will find it tough to know if they have cut interest rates low enough and soon enough. The Fed has gotten it wrong before, such as in the overly tight money policy of the early 1990s that sent interest rates soaring and the loose-as-a-goose policy of the 1970s that fanned inflation. Some analysts believe that the market can ''live'' without an immediate lowering of interest rates. ''If the stock market goes down, it will be because the market is over-valued and not because the Fed has not cut short-term interest rates and the central bankers are dragging their feet,'' said Hugh Johnson, chief investment officer at First Albany Corp. But investors are unpredictable. ''Even if the Fed does reduce rates, investors may think they have seen the last of the rate cuts and there will be no more monetary loosening through the end of the year, and this could be interpreted as bad for the stock market,'' Sinai said. ''So either way, the market at these levels is at risk.'' For the week, the Dow Jones industrial average was off 55.87 points at 8,919.59, the Nasdaq composite index was down 8.57 at 1,847.99 and the Standard & Poor's 500 stock index was up 15.29 at 1,125.72. 17:51 11-13-98