Euro, IMF Will Affect World Economy

Both Merrill Lynch & Co. Inc. and Banque Paribas anticipate that the U.S. Federal Reserve will cut the key federal funds rate, the interest rate it charges banks for overnight borrowing, to 4% or less by next spring. The rate is currently 5%. As the resulting increase in money moves through the economy, the U.S. may be able to stay out of recession in 1999. But, globally things are a bit more iffy because two important elements aren't being sufficiently factored into forecasts, say some observers. Europe will introduce its common currency, the euro, on Jan. 1, 1999, and its potential for deflation is being underestimated. Meanwhile, at least several months must pass before the success -- or failure -- of any International Monetary Fund efforts to rescue the economies of Brazil and other emerging markets can be accurately measured.