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Fed Likely To Leave Interest Rates Unchanged

By John S. McClenahen In the wake of Federal Reserve Board Chairman Alan Greenspan's testimony to the House Financial Services Committee on April 30, the consensus is that the Federal Open Market Committee (FOMC), the Fed group that sets U.S. interest rates, will leave the influential federal funds rate at 1.25% when it meets next Tuesday. Greenspan "conveyed enough optimism about the growth outlook to support our expectation that policy will be left unchanged at the May 6 FOMC meeting," states Maury Harris, chief U.S. economist at UBS Warburg LLC, New York. However, opinion is divided on whether or not the FOMC will signal a "bias" in favor of further reducing short-term interest rates. Harris, for example, expects the panel to adopt a "balanced" position between lowering and raising rates. But David Rosenberg, chief North American economist at Merrill Lynch & Co., New York, anticipates a "de facto" bias toward lowering rates. The last time the FOMC met, on March 18, the panel abstained from characterizing its level of confidence, saying the U.S. economic situation was just too uncertain.

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