Fed Meets Again on Interest Rates

Tuesday, January 30th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Worried that the economy may be stalling, Federal Reserve Board Chairman Alan Greenspan is likely to push for another bold half-point interest rate cut to try to rev up growth.

That's what private analysts are predicting in the wake of Greenspan's assertion to Congress last week that economic growth at present is probably ``very close to zero.''

``That was a strong message ... that he will continue to be aggressive in easing monetary policy,'' said Mark Zandi, chief economist for Economy.com, a consulting firm.

The Federal Open Market Committee, comprising Fed board members in Washington, including Greenspan, and presidents of the Fed's regional banks, opened a private two-day meeting on interest rate policy Tuesday. An announcement of the policy-makers' decision on rates is expected Wednesday afternoon.

As Fed members were meeting behind closed doors, President Bush ducked a question at the White House about whether the central bank should cut interest rates, saying that he had made a mistake when he expressed approval for the Fed's first rate cut on Jan. 3.

``That's the last time I'm going to comment about the actions Mr. Greenspan takes. He's an independent voice and needs to be an independent voice,'' Bush told reporters.

Zandi, other economists and Wall Street expect the Fed after Wednesday's meeting to announce a reduction of half a percentage point in the federal funds rate, the interest banks charge each other, from 6 percent to 5.50 percent.

Economists don't believe that will be the last rate cut.

In coming months, economists predict, the funds rate will drop to 5 percent in a series of rate-cutting moves by May or June. Fed policy-makers could decide to push the funds rate even lower, depending on how the economy unfolds between now and then, economists said.

Some analysts didn't rule out a less dramatic, quarter-point rate reduction at this meeting, the Fed's first regularly scheduled session of the new year.

Whatever size reduction the Fed makes, it's likely to be followed by a similar cut in commercial banks' prime lending rate, the benchmark for millions of personal and business loans, standing now at 9 percent.

By lowering borrowing costs, the Fed aims to spur business investment and consumer spending, which would in turn boost economic growth.

Testifying Thursday before the Senate Budget Committee, Greenspan offered a pessimistic assessment of current economic conditions. ``As far as we can judge, we have had a very dramatic slowing down and, indeed, we are probably very close to zero (growth) at this particular moment,'' he said.

Greenspan didn't rule out a recession, saying that would depend on whether the economy's ``marked decline breaches consumer confidence.''

Driven down by growing fears of a recession, consumer confidence fell sharply in January, plunging to its lowest level in four years, an industry group reported Tuesday.

The Consumer Confidence Index dropped more than 14 points to 114.4, the lowest level since December 1996 when it was 114.2, the Conference Board said.

The big question is whether rate cuts by the Fed will be enough to avert a recession, analysts said.

Sung Won Sohn, chief economist at Wells Fargo, was optimistic. ``I still think we will avoid a recession, but it is going to be a high-wire act,'' Sohn said.

Some economists believe the economy's sharp slowdown was a factor in Greenspan's blessing for a government tax-cut regime. His comments gave a major boost to President Bush's $1.6 trillion across-the-board tax cut proposal.

Fearful about the weakening economy, the Fed, in a rare move between regularly scheduled meetings, cut interest rates by a half-point on Jan. 3, the biggest cut in more than eight years.

Economists said the Fed has a lot of flexibility in cutting rates now because inflation remains tame, except for a burst of higher energy prices.

``I think the Fed views this as an opportunity to be able to lower rates without ... jeopardizing the good, restrained inflation the country now enjoys,'' said Stuart Hoffman, chief economist for PNC Financial Services Group.

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