Asian crisis curbs U.S. growth, analysts say<\/p>\n
NEW YORK (Reuters): An ongoing financial crisis in southeast
\nAsia will probably curb U.S. economic growth, and possibly
\ninfluence how the Federal Reserve handles monetary policy in the
\nnear future, Fed sources and analysts said.<\/p>\n
"There is undoubtedly going to be some effect from Asian
\neconomies slowing a bit on the U.S. economy," a Fed source, who
\nasked not to be named, told Reuters on Monday.<\/p>\n
"If Asian demand slows down, and those countries being<\/p>\n
trading partners of the United States, that would have to slow
\ndown demand for U.S. goods in Asia," the source added.<\/p>\n
A benchmark model compiled by Chase Manhattan Bank on Monday
\nshowed the crisis in Asia was likely to retard U.S. Gross
\nDomestic Product (GDP) growth by 0.5 percent in 1998 and 1999.<\/p>\n
The model-based test assumed financial markets would remain
\nroughly stable from this point forward.<\/p>\n
"We know it's an optimistic assumption, but the numbers give
\nus an idea of the impact of the Asian crisis can have on our
\neconomy," said James Glassman, senior economist at Chase
\nSecurities Inc.<\/p>\n
On Monday, the Dow Jones Industrial Average index staged its
\nlargest point drop in history, ending at 7,161.15, down an
\nunprecedented 554.26 points.<\/p>\n
Meanwhile, scared investors flocked to the safe haven of the
\nU.S. Treasury market, boosting the benchmark 30-year bond up 1-
\n20\/32 points to 102-30\/32.<\/p>\n
The rally brought the bond yield to 6.16 percent, the lowest
\nlevel since mid-February 1996.<\/p>\n
Wall Street experts said the Asian crisis, which escalated
\nafter Hong Kong stock prices plunged 18 percent last week, was
\nlikely to slow the U.S. economy through three basic channels:
\nexchange rates, wealth and supply.<\/p>\n
* The exchange rate channel: The depreciation of several Asian
\ncurrencies has made U.S. goods more expansive in those countries,
\nwhile making Asian products cheaper to Americans. This phenomenon
\nmight make the U.S. trade deficit grow at an even faster rate
\nthan it has widened in recent months given the dollar's current
\nstrength.<\/p>\n
* The wealth channel: The plunge in Asian stocks has reduced
\nfinancial wealth in that region. The spillover U.S. stock
\nmarkets, which also dropped sharply over the last few days, tends
\nto shake American consumers' confidence in the economy going
\nforward. Those trends could slow demand for U.S. goods both
\ndomestically and on foreign markets.<\/p>\n
* The supply effect: An economic slowdown in Asia would
\nprobably boost excess global capacity while increasing
\ncompetitiveness. This could ultimately put downward pressures on
\nprices, and keep inflation low.<\/p>\n
"These events in Asia are becoming an important element of
\nthis outlook now. It's going to reinforce the idea the U.S.
\neconomy can slow down on its own, without creating too much
\ninflation," Chase's Glassman said.<\/p>\n
In such an environment, analysts said it is hard to find
\nelements that would justify a change in the course of the U.S.
\nmonetary policy in the near future.<\/p>\n
"The specter of worsening economic slowdown in Asia promises
\nfurther disinflationary effects on the U.S. economy," Robert
\nDiClemente, chief U.S. economist at Salomon Brothers, said in a
\nreport.<\/p>",
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