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Sat, Mar 31, 2001 EST
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Fed Meets Amid Speculation of Further Rate Cuts
   Fox Market Wire
Analysts expect Federal Reserve Board Chairman Alan Greenspan to push for another bold half-point interest rate cut to combat slowing growth as board members hold a two-day meeting in Washington Tuesday.

Last week, Greenspan noted to Congress that economic growth at present is probably "very close to zero."

"That was a strong message ... that he will continue to be aggressive in easing monetary policy," said Mark Zandi, chief economist for Economy.com, a consulting firm.

An announcement of the cut is expected to come Wednesday from the Federal Open Market Committee, comprised of Fed board members, including Greenspan, and presidents of the Fed's regional bank.

President Bush ducked a question at the White House Wednesday about his opinion on possible central bank action, saying that he had made a mistake when he expressed approval for the Fed's first rate cut on Jan. 3.

"He's an independent voice and needs to be an independent voice," the president said.

Zandi and other economists expect a decrease in the federal funds rate from 6 percent to 5.50 percent, and some predict a drop to 5 percent or lower by May or June, depending on the cuts' effectiveness in spurring growth.

Some analysts didn't rule out a less dramatic, quarter-point rate reduction at this meeting, the Fed's first regularly scheduled session of the new year.

Commercial banks are likely to follow the Fed by cutting their prime lending rates, which now stand at 9 percent. By lowering borrowing costs for thousands of businesses and individuals, the Fed aims to spur business investment and consumer spending, which would in turn boost economic growth.

Testifying Thursday before the Senate Budget Committee, Greenspan offered a pessimistic assessment of current economic conditions. "As far as we can judge, we have had a very dramatic slowing down and, indeed, we are probably very close to zero at this particular moment," he said.

Greenspan didn't rule out a recession, saying that would depend on whether the economy's "marked decline breaches consumer confidence."

As if on cue, consumer confidence fell sharply in January, plunging to its lowest level in four years, an industry group reported Tuesday.

The Consumer Confidence Index dropped more than 14 points to 114.4, the lowest level since December 1996 when it was 114.2, the Conference Board said.

The big question is whether rate cuts by the Fed will be enough to avert a full-blown recession, analysts said.

Sung Won Sohn, chief economist at Wells Fargo, was optimistic. "I still think we will avoid a recession, but it is going to be a high-wire act," Sohn said.

Some economists believe the economy's sharp slowdown was a factor in Greenspan's blessing for a government tax-cut regime. His comments gave a major boost to President Bush's $1.6 trillion across-the-board tax cut proposal.

Economists said the Fed has a lot of flexibility in cutting rates now because inflation remains tame, except for a burst of higher energy prices.

"I think the Fed views this as an opportunity to be able to lower rates without ... jeopardizing the good, restrained inflation the country now enjoys," said Stuart Hoffman, chief economist for PNC Financial Services Group.

Fearful about the weakening economy, the Fed, in a rare move between regularly scheduled meetings, cut interest rates by a half-point on Jan. 3, the biggest cut in more than eight years.

— The Associated Press contributed to this report

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