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Archive for Tuesday, January 30, 2001

Analysts expect rate cut

Experts hope Federal Reserve decision staves off recession

January 30, 2001

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— Alan Greenspan's stark assessment that economic growth is probably "very close to zero" has many analysts convinced the Federal Reserve will follow its surprise Jan. 3 rate cut with another half-point reduction during this week's meeting.

The big question, analysts said Monday, is whether the Fed's aggressive easing will be enough to avert a full-blown recession.

The central bank's interest-setting group, the Federal Open Market Committee, convenes behind closed doors today and Wednesday for its first policy discussions of 2001.

Greenspan issued a rather bleak view of current economic conditions during congressional testimony last Thursday.

"As far as we can judge, we have had a very dramatic slowing down and, indeed we are probably very close to zero at this particular moment," Greenspan said.

In that pessimistic assessment, Greenspan did not rule out a recession, saying that would depend on whether the economy's "marked decline breaches consumer confidence."

Many analysts saw Greenspan's remarks to the Senate Budget Committee as an effort to explain the Fed's sudden one-half point rate reduction Jan. 3, between regular meetings.

"The economic numbers that have been coming in are very weak and I think they are particularly scared by the consumer confidence numbers," said David Wyss, chief economist at Standard & Poor's Corp. "If people get scared and stop spending, then you have a recession."

Wyss said he believed the economy would advance at an annual rate of just 0.7 percent in the current January-March quarter, a growth rate so weak that a severe winter storm or other bad luck could tip the economy into negative territory. A recession is often defined as two consecutive quarters of declines in the gross domestic product.

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