Fed and European Peer May Split on Rate Policy

Federal Reserve Chairman Alan Greenspan will convene Fed policymakers for a regularly scheduled meeting Tuesday, and virtually all expectations are that the central bank will leave its target short-term interest rates unchanged.

Fed forecasters at 25 major government bond dealers surveyed by Reuters last week all agreed the Fed will keep the overnight loan rate among banks, the federal funds rate, at 4.75%.

And only two thought the Fed will adopt a “tightening” bias--meaning Greenspan and company will signal that the next probable move in interest rates is up.

With U.S. economic growth still roaring, but no signs of inflationary pressures building, the Fed should and will just leave well enough alone, most economists say.

The next course of action for the Fed’s European counterpart, however, isn’t so clear. The European Central Bank will meet April 8, and some forecasters believe the bank will cut its 3% benchmark rate in the face of weak economic growth on the Continent. “We think there is a good chance that the bank will drop its key lending rate,” economists at BT Alex. Brown told clients in a letter last week.

Paul Kasriel, economist at Northern Trust, doesn’t buy it. ECB President Wim Duisenberg is worried about stock market bubbles in some European markets, and he also has “voiced disappointment with the lack of progress being made across Euroland to balance government budgets,” Kasriel said. That doesn’t sound like a central bank chief priming for a rate cut, he said.