Fed May Surprise Wall St. on Rates; Time Ripe for Cut, Some Analysts Say
When Federal Reserve policymakers meet today, they will confront numerous signs of a weakening economy that might ordinarily lead them to cut short-term interest rates.</br></br>But these are hardly ordinary times, and Wall Street seems convinced the Fed won't act in the midst of the budget confrontation between President Clinton and congressional Republicans, lest it be seen as taking sides.</br></br>However, recent economic statistics -- such as yesterday's report from the Commerce Department that retail sales fell 0.2 percent last month -- indicate softening growth and falling inflation. Inflation has been so tame that it appears to be running at a rate about half a percentage point lower than Fed officials predicted as recently as July.</br></br>"If it weren't for the budget situation, I think the Fed would make a cut {now}," said economist L. Douglas Lee of HSBC Washington Analysis, a financial consulting firm.</br></br>But the budget stalemate could turn out to be an argument in favor of cutting rates today rather than waiting for a deal to be struck. A small rate cut, likely a quarter of a percentage point, might ease any economic concerns caused by the budget stalemate and government shutdown. One of the Fed's charges, after all, is to provide liquidity during uncertain times.