UBS Warburg Predicts Two More Fed Cuts

By John S. McClenahen Although commodity prices, often a leading economic indicator, seem to be bouncing back from 15-year lows, the U.S. recession is not yet over, and the Federal Reserve likely will lower short-term interest rates this month and next, says UBS Warburg LLC, New York. "We expect the employment report on Friday [Dec. 7] to show the unemployment rate up another 0.3 point to 5.7% in November," says chief U.S. economist Maury Harris. "Historically, the Fed does not stop easing until the unemployment rate stops rising." With several economists forecasting jobless rates above 6% in early 2002, a policy change by the rate-setting Federal Open Market Committee (FOMC) is likely to be several months away. In the meantime, Harris and his Warburg colleagues expect the FOMC to lower the influential federal funds rate by 25 basis points to 1.75% at its Dec. 11 meeting and then by another 25 basis points to 1.5% on Jan. 30, the second day of the panel's first meeting in 2002.

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