Fed Unlikely To Cut Interest Rates

ByJohn S. McClenahen When Chairman Alan Greenspan and his colleagues on the Federal Open Market Committee (FOMC) meet in Washington next week, they'll probably hold the influential federal funds rate at 1.75%. Until just the past few days, a further cut in short-term interest rates -- to 1.5% -- generally had been anticipated. However, on Jan. 24, Greenspan told the U.S. Senate's Budget Committee "there have been signs recently that some of the forces that have been restraining the [U.S.] economy over the past year are starting to diminish and that activity is beginning to firm." And also on Jan. 24, the U.S. Labor Department reported that initial claims for unemployment insurance fell to 376,000 for the week ending Jan. 19, a decline of 15,000 from the previous week and their third consecutive decline. "Recent jobless claims data suggest that the labor market is stabilizing and that the worst of the downturn is probably over," says Stan Shipley, a senior economist at Merrill Lynch & Co., New York. Indeed, both Merrill Lynch and UBS Warburg, New York, now expect the FOMC will hold the federal funds rate line at 1.75% next week. "The easing cycle that began in January 2001 is now probably over," says Bruce Steinberg, Merrill Lynch's chief economist. "Still, we don't expect the Fed to tighten anytime soon," he stresses. "The first tightening move is unlikely to occur before late summer at the soonest."