Fed Cuts Short-Term Interest Rate; Another Cut Expected

By John S. McClenahen It's mid-December, but U.S. interest-rate watchers are looking at Jan. 30, 2002. That's when the Federal Open Market Committee (FOMC) will be winding up its next scheduled meeting, a two-day discussion of both short-term and longer-term economic outlooks. Odds are that Chairman Alan Greenspan and his colleagues will cut the influential federal funds rate another quarter of a percentage point to 1.5%, their twelfth cut in 12 months. In its own convoluted language, the 12-member FOMC signaled as much when it cut the federal funds rate to 1.75% on Dec. 11. "The committee continues to believe that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the future." Significantly, the FOMC acknowledged some signs of rising demand in the U.S. economy. But it said "those signs are preliminary and tentative." The FOMC's bottom line: "Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels."

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