A 4% Fed Funds Rate By August?

By John S. McClenahen Even before the Federal Open Market Committee (FOMC), the U.S. Federal Reserve panel that sets short-term interest rates, yesterday lowered the influential federal funds rate 50 basis points to 5%, the "What's next?" speculation had already begun. Officially, the FOMC is not slated to meet again until May 15. But there's nothing to prevent Fed chairman Alan Greenspan from acting before then -- if deteriorating economic conditions warrant it. Indeed, Greenspan and his colleagues say that "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." In short, they're concerned that both demand and production will remain soft. "Since the Fed retained its easing bias, more rate cuts are coming," asserts Bruce Steinberg, chief economist at Merrill Lynch & Co., New York. He expects the federal funds rate to be 4% by August. However, the Fed's action yesterday is only one of the steps necessary for U.S. economic recovery, contends Jerry J. Jasinowski, president of the National Assn. of Manufacturers, Washington. "Congress should act to reduce individual taxes as soon as possible, lowering marginal rates retroactively to the first of the year," he says.

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