Fed Likely to Cut Rates Today, but How Big a Cut?; Wall Street Expects Bigger Move Than Do Economists, Analysts
Wall Street is counting on Federal Reserve officials to lower their target for overnight interest rates today by three-quarters of a percentage point to help the hapless stock market regain its footing and keep the economy from sliding into a recession.</br></br>Wall Street may well be disappointed. Fed Chairman Alan Greenspan has promised that the central bank will respond "aggressively" to the abrupt slowing of U.S. economic growth, but it's far from clear exactly what that means in the swirling crosscurrents of the U.S. and world economies. Furthermore, the Fed's top policymaking group, the Federal Open Market Committee, has most often changed its rate target in quarter-point increments, and a half-point could be considered aggressive.</br></br>A survey of 121 analysts and economists completed yesterday by Stone & McCarthy Research Associates, a financial markets research firm, found that nearly two-thirds of them believe the Fed will cut the 5.5 percent target by only half a point. Less than a third are looking for three-quarters, while a half dozen said the Fed would slash rates by a full percentage point.</br></br>"I think they are going to go half a point," said Charles Lieberman, chief economist for Advisers Financial, a money- management firm. "The recent economic data actually suggest some improvement in the economy. Consumer spending has been better than expected, including for cars, [and] auto companies have boosted production plans for the second quarter."</br></br>A larger cut could lead some people to conclude that "The Fed must know about some problems that we don't," and then the markets might sell off even more, Lieberman said. "And I don't think they will want to encourage anyone to think they are doing it to support the stock market."