UBS Warburg Economist Predicts Fed Will Go 'On Hold' After August

ByJohn S. McClenahen Like a lot of other economists, Maury Harris, the chief North American economist for UBS Warburg, anticipates another 25-basis-point cut in short-term interest rates when the Federal Open Market Committee (FOMC) meets on Aug. 21. The expected easing would bring the influential federal funds rate down to 3.5%. But Harris is betting that will be the last of the interest-rate cuts by Federal Reserve Chairman Alan Greenspan and his FOMC colleagues in 2001. After Aug. 21, the group is scheduled to meet next on Oct. 2, and by then "there should be sufficient evidence of a tentative [U.S. economic] recovery so that the Fed should stay on hold with a 3.5% federal funds rate for the rest of the year," predicts Harris. He's forecasting inflation-adjusted GDP growth of 1.8% in the current calendar quarter -- more than one percentage point higher than the U.S. Commerce Dept.'s preliminary 0.7% estimate for the second quarter of 2001. And Harris is looking for 3.1% real growth in the final quarter of this year.