Will Fed answer Wall Street's prayers?<\/p>\n
NEW YORK (Reuters): Wall Street's leading firms were split
\nFriday over whether the Federal Reserve will answer the markets'
\nprayers for a three-quarter point cut in interest rates next
\nweek, a new Reuters poll showed.<\/p>\n
In a survey of the 25 primary dealers of U.S. government
\nsecurities, a paper-thin majority of 13-12 predicted the Federal
\nOpen Market Committee (FOMC) will lower the 5.5 percent federal
\nfunds rate on overnight bank lending to 5.0 percent on Tuesday
\nwhile the rest saw an unusually large 0.75 point cut.<\/p>\n
Initially, 14 had predicted a 0.50 point cut, and 11 had
\nforecast a larger move, but one firm later shifted its view.<\/p>\n
Stock investors who are clamoring for the bigger rate cut will
\nbe crushed if the Fed does not hear their pleas, and that will
\nlikely translate into further selling in an already depleted
\nequities market.<\/p>\n
"The markets will be disappointed if there is just a 50-basis-
\npoint cut on Tuesday," said Carol Stone, deputy chief economist
\nat Nomura Securities International in New York. "If the Fed wants
\nto stay up with this, they need to do 75. We would talk about 100
\nbut the Fed might be afraid of signaling too much panic with
\n100."<\/p>\n
Fed chairman Alan Greenspan last month said the economy had
\nground to a near standstill and the poll showed Wall Street firms
\nhave very modest expectations for growth this year.<\/p>\n
The poll was conducted after the government released new data
\nshowing a sharp drop in industrial production in February and,
\nseparately, little inflation in wholesale prices.<\/p>\n
Consumer sentiment unexpectedly edged up in the University of
\nMichigan's preliminary March survey. But the data did not capture
\nthe full impact of a stock market sell-off this week, economists
\nsaid.<\/p>\n
Economists say a sharp drop in stock prices threatens to dent
\nconsumer confidence further and crimp consumer spending, which
\naccounts for two-thirds of all U.S. economic activity.<\/p>\n
Housing starts last month fell less than economists had
\nexpected, providing more evidence that the housing market is
\nfairly robust despite the slowdown, data on Friday showed.<\/p>\n
Until last week, markets were betting the Fed would slice
\nanother half point off rates in March, following two cuts in
\nJanuary that reduced the funds rate by a total of a full point to
\ntry to ward off recession.<\/p>\n
In the last Reuters poll on Feb. 28, 23 of the 25 primary
\ndealers forecast a 0.50 point cut in fed funds while two expected
\na 0.25 point reduction next week.<\/p>\n
But expectations for a bigger rate cut shot up this week when
\ndeepening malaise over U.S. corporate profits and growing
\nconcerns about Japan's banks and fragile economy triggered a deep
\nsell-off in U.S. and global stock markets.<\/p>\n
The technology-dominated Nasdaq composite, which tracks nearly
\n4,700 stocks, is down more than 60 percent from its record high a
\nyear ago. It has fallen more than 20 percent so far this year and
\nnearly 8.0 percent this week, ending on Friday at the lowest
\nlevel since November 1998.<\/p>\n
Blue-chip shares have fared better but the Dow Jones
\nindustrial average dipped below the 10,000 mark this week for the
\nfirst time since October. It closed on Friday at a one-year low,
\ndown 7.7 percent for the week.<\/p>\n
By Friday, fed funds futures which gauge market rate
\nexpectations, were showing about a 70 percent chance of a 0.75
\npoint rate cut compared to only 15 percent a week earlier.
\n" The market is putting a heavy challenge on Greenspan to do
\n75," said John Ryding, managing director and senior economist at
\nBear Stearns in New York. "It's the show-me FOMC."<\/p>\n
The Fed's work to shore up the flagging economy will not be
\nfinished next week, dealers predicted. Of the 25, 11 expect
\nanother 0.50 point cut at or by the May 15 FOMC meeting while
\neight expect a 0.25 point cut at the meeting. Twenty-two dealers
\nput the funds rate at 4.5 percent or less by mid-year.<\/p>\n
Nomura, which had the most aggressive forecast for the
\nimmediate future, said it expected a 0.75 point cut next week, an
\n0.50 point reduction between the March and May Fed meetings and
\nanother 0.25 point cut at the May meeting.<\/p>\n
"We began to understand this week that there is much more
\nweakness in Japan and Europe is slowing down," said Nomura's
\nStone.<\/p>\n
"The Fed will tell you those are not its primary concerns. But
\nit's obvious from the industrial production data that weakness in
\nother places is slowing demand for U.S. goods. There is a
\ndomestic impact to developments abroad," she said.<\/p>\n
On average, the dealers predicted 0.6 percent growth on an
\nannual basis in the January-March quarter, a 1.0 percent pace in
\nthe April-June quarter and 1.7 percent for the full year, fourth-
\nquarter over fourth-quarter.<\/p>\n
Two dealers are predicting a recession in the first half of
\nthe year, or two straight quarters of contraction.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/will-fed-answer-wall-streets-prayers-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}