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To: Bob Dobbs who wrote (26645)	1/21/1999 4:22:00 PM
From: Roderick Francey	Respond to of 116767

More liquidity?? I thought there was sufficient liquidity already, but what do I know ... ========================================================== POLL-Fed to ease twice in '99 despite strength now By Scott Gerlach NEW YORK, Jan 21 (Reuters) - The Federal Reserve will lower U.S. interest rates twice in 1999 as fallout from last year's global financial crisis finally spreads beyond the export sector, economists polled by Reuters said. Nineteen economists at banks, brokerages and research firms forecast, on average, that the key federal funds rate would fall to 4.50 percent in the second quarter and 4.25 percent by yearend. They were participating in the quarterly Reuters survey of long-term U.S. forecasts. ''We expect the economy to slow, partly as a result of the turmoil that took place in the fall,'' said Carol Stone, deputy chief economist at Nomura Securities International Inc. The central bank cut the overnight lending rate, currently 4.75 percent, from 5.5 percent in three moves in late 1998 as financial crises in Asia and Latin America choked liquidity in the United States. Some effects of the crisis have yet to be felt, economists said. Slack foreign demand for U.S. products, resulting from devaluations and recessions abroad, has punished the factory sector for months, Stone said. Eventually, manufacturing woes will sap domestic capital spending, leading to job losses and dampened consumer sentiment, she said. Inflation should remain subdued as the economy cools, allowing the central bank to trim rates without fear of a price flare-up, economists said. In a separate portion of the quarterly poll, the experts projected consumer prices would rise by just over 2.0 percent annually through 2000. That gives the Fed plenty of room to lower the inflation-adjusted real fed funds rate, some respondents said. At about 2.75 percent, real fed funds -- the difference between the overnight rate and inflation expectations -- sit well above the historical norm of about two percent, they said. ''The working assumption is, we'll gravitate toward a more normal balance'' between the funds rate and inflation, said Michael Englund, chief economist at Standard & Poor's MMS. He projected a quarter-percentage-point rate cut later this year and one more early in 2000. Several respondents expressed doubts about their forecasts, however, noting the U.S. economy has consistently surprised them with faster-than-expected growth. Even Fed Chairman Alan Greenspan, addressing Congress on Wednesday, said signs of a domestic slowdown ''remain scant.'' ''Strong money growth, lower commodity prices, low interest rates -- all these things argue domestic demand is not going to slow all that much in the first half of the year,'' said Peter Kretzmer, senior economist at NationsBanc Capital Markets. The Fed's 1998 rate cuts should provide noticeable stimulus in the months ahead, pushing the central bank to unwind them as the year progresses, Kretzmer said. ''The real question is, does this extra liquidity over time allow pricing power to develop?'' the economist said. He forecast rate hikes in third-quarter 1999 and first-quarter 2000 but cautioned that pockets of financial instability around the globe, as evidenced by Brazil's recent devaluation, made Fed policy difficult to predict. The poll was conducted January 11-14. biz.yahoo.com