Economists Foresee No Rate Change
Conflicting signals about the economy are expected to keep the Federal Reserve Board from taking any action on short-term interest rates when it meets Tuesday.
Many observers of the central bank expect the policymaking Federal Open Market Committee to stand pat for the next several months. Economists say the panel will need time to sift through economic data skewed by unusual occurrences such as the partial government shutdown, winter cold and the recent strike at General Motors Corp.
“We have a lot of distortions going on in the economy, and we’re getting different signals from the numbers,” said economist Joshua Feinman of Bankers Trust Co. “For the next few months they [policy makers] are going to be wanting clear signs of the underlying trends in the economy.”
The committee will meet Tuesday at 8 a.m., an hour earlier than usual, because Fed Chairman Alan Greenspan is due to appear later that day at a Senate Banking Committee hearing on his renomination.
An announcement of the committee’s policy decision will be made before Greenspan arrives at the hearing around noon, the Fed said last week.
The Senate hearing will also examine the nomination of White House Budget Director Alice Rivlin and private economist Laurence Meyer to the central bank. Rivlin is being considered for the Fed vice chairman post and Meyer is up for a governor’s seat. The three candidates, all named by President Clinton, are expected to win confirmation easily.
If the Fed policymakers decide to take no action Tuesday on interest rates, it would represent a pause in an easing phase that began last July in response to signs of slower growth.
The Fed has trimmed the federal funds overnight bank lending rate twice since then, its last two moves coming in December and January.
The Fed funds rate, the central bank’s chief economic lever, stands at 5.25%. The discount rate, at which the Fed loans money to banks, is 5%.
The view that the Fed will take no action is unanimous among 27 analysts polled by Reuters.
For many of them, the steady-policy prediction is a marked shift from a previous expectation that the central bank would ease rates further to head off a recession.
The earlier view stemmed from concerns at the start of the year that the economy was faltering under the weight of a three-week government shutdown and one of the worst blizzards on the East Coast in history.
But talk of rate cuts was put to rest early this month after news that February payrolls skyrocketed by 705,000 jobs.
The gain is seen as pivotal in a Fed decision to stay on hold, even though Fed officials, including Greenspan, have downplayed the number as a snapback from January’s weather-induced weakness.
Nevertheless, other data released since then, on retail sales and industrial output, appears to add weight to the view that the economy is chugging along, though probably not at the racing pace suggested by the jobs number.
“When you add up all the factors, it would lead you to vote for waiting,” said Roger Kubarych, a former Fed official now with the New York firm Henry Kaufman & Co.
