Analysts Debate Possible Fed Action at Upcoming Meeting

When Federal Reserve policymakers convene Tuesday to mull their next decision on interest rates, they probably will agree that the economy is slowing markedly. But there may be some disagreement over whether the nature of the slowdown is becoming worrisome.

Judging by the recent rhetoric of Fed officials, it appears that Chairman Alan Greenspan is more uneasy than many of his colleagues about the potential for the current slowdown to develop into something ominous.

“Greenspan seems to be moving ahead of his colleagues” in being concerned about the economic situation, said Salomon Smith Barney economist Robert DiClemente.

Accordingly, Greenspan’s evident caution about the economic setting raises the prospect that he may now be more willing to entertain an interest rate cut than financial markets seem to expect.

For now, nearly all analysts expect the Fed on Tuesday to merely shift to a neutral view of the economic risks, removing the central bank’s current inflation “bias.” That could pave the way for rate cuts in 2001.

But analysts note that many of the Fed policymakers who spoke in the last two weeks seem to put more credence on the notion that the economy is simply slowing to a more sustainable pace.

That seems to be the view of some current voting members of the Federal Open Market Committee, including Fed Gov. Edward Kelley, Richmond Fed President Alfred Broaddus and San Francisco President Robert Parry.

However, Greenspan has seemed more uneasy than many other policymakers, as judged by his pivotal Dec. 5 speech to a banking group. In that speech, Greenspan said that in periods when the economy is shifting from “unsustainable to more modest rates of growth,” there is more risk of shock from “untoward events that would be readily absorbed in a period of boom.”