| [ economics ] in KIDS 글 쓴 이(By): pictor (홍헌수) 날 짜 (Date): 1999년 7월 1일 목요일 오전 03시 29분 25초 제 목(Title): Te statement released by the FED Top Financial News Wed, 30 Jun 1999, 2:29pm EDT Federal Reserve Boosts Overnight Rate Quarter Point, No Bias for Raising By Washington newsroom Washington, June 30 (Bloomberg) - The following is the full text of the statement released today by the Federal Reserve: The Federal Reserve Open Market Committee voted to raise its target for the federal funds rate 25 basis points to 5 percent. Last fall, the Committee reduced interest rates to counter a significant seizing-up of financial markets in the United States. Since then, much of the financial strain has eased, foreign economies have firmed, and economic activity in the United States has moved forward at a brisk pace. Accordingly, the full degree of adjustment is judged no longer necessary. Labor markets have continued to tighten over recent quarters, but strengthening productivity growth has contained inflationary pressures. Owing to the uncertain resolution of the balance of conflicting forces in the economy going forward, the FOMC has chosen to adopt a directive that includes no predilection about near-term policy action. The Committee, nonetheless, recognizes that in the current dynamic environment, it must be especially alert to the emergence, or potential emergence, of inflationary forces that could undermine economic growth. ======================== Fed Boosts Overnight Rate 1/4 Point, Signals It May Not Raise Rates Again By Michael McKee Fed Raises U.S. Rate Quarter Point to 5%, Suggests All for Now Washington, June 30 (Bloomberg) -- Federal Reserve policy- makers raised U.S. interest rates a quarter point to 5 percent and signaled they will wait for evidence inflation is accelerating before they increase borrowing costs again. ``Much of the financial strain has eased, foreign economies have firmed, and economic activity in the United States has moved forward at a brisk pace,'' the central bank said in a statement announcing the first rise in the overnight bank lending rate since March 1997. The Federal Open Market Committee's announcement also said a so-called bias toward higher interest rates has been dropped. ``Owing to the uncertain resolution of the balance of conflicting forces in the economy going forward, the FOMC has chosen to adopt a directive that includes no predilection about near-term policy action,'' the Fed said. Still, the Fed cited tight labor markets as a reason why it ``must be especially alert to the emergence, or potential emergence of inflationary forces that could undermine economic growth.'' The FOMC next meets on Aug. 24. Today's action will translate into higher borrowing costs for everything from business loans to auto, home equity and some credit card loans for American consumers. ``On the other hand, savers will benefit'' as deposit rates rise, said Lynn Reaser, chief economist at Bank of America Private Bank in Jacksonville, Florida. For businesses, the effect of a quarter point increase ``will not be measurable,'' said Joseph Reid, the chief executive of Capital Bancorp in Lansing, Michigan. ``It's too small an increase to really affect the decision of a business to expand or acquire.'' Greenspan Speed Limit Consumer spending on cars, homes, appliances and other products picked up speed after the Fed cut interest rates three times last year to stabilize financial markets in the wake of Russia's debt default. The economy grew at a 6 percent annual rate in last year's final quarter and at a 4.3 percent pace in the first quarter, prolonging an economic expansion that's on track to be the longest in U.S. history early next year. Most economists estimate growth in the second quarter that ends today will be close to a 4 percent rate. For Fed officials, that's too much of a good thing. Fed Chairman Alan Greenspan told Congress this month his personal speed limit is growth somewhere around 3 percent. Anything faster runs the risk of touching off higher inflation as goods and workers become scarce and more costly, he said. Little Inflation So far that hasn't happened. The consumer price index was unchanged in May, and the price deflator for personal consumption -- which Greenspan cites as more accurate than the CPI -- rose only 1.6 percent over the past 12 months. Still, Greenspan told Congress that whenever possible the Fed should take action before inflation breaks out. ``Modest preemptive actions can obviate the need of more drastic actions at a later date that could destabilize the economy,'' he said on June 17. That's why today's Fed decision was widely anticipated, especially after FOMC members announced a bias toward higher rates at their May 18 meeting as part of a new policy to signal important shifts in members' views. A neutral bias also doesn't mean the Fed is on hold indefinitely, said William Sullivan, chief economist at Morgan Stanley Dean Witter in New York. ``They're still capable of raising rates later in the year if we don't get a cooling in economic growth,'' he said. Manufacturing Recovery After raising the overnight rate 50 basis points to 4.75 percent on August 16, 1994, the Fed said ``these actions are expected to be sufficient, at least for a time, to meet the objective of sustained, non-inflationary growth.'' It held the rate steady in September, and then raised it 75 basis points on November 15, 1994. Manufacturing has started to show signs of recovery from last year's slump as demand from overseas picks up again. The National Association of Purchasing Management - Chicago's index of manufacturing unexpectedly rose to 60.0 in June from 57.9 in May, suggesting demand for goods made in the Midwest, such as autos, is unrelenting. Still, there are signs growth is moderating. After setting a record in March, sales of existing homes fell 3.3 percent in April and 4 percent in May. And the Commerce Department reported yesterday that new single-family home sales fell 5.1 percent in May. Applications for mortgages fell 0.4 percent last week as the average contract rate on a 30-year fixed-rate mortgage with a 20 percent down payment jumped 22 basis points to 7.81 percent, the highest level in more than two years, the Mortgage Bankers Association of America said today. Confident Consumers Even so, many FOMC members have made it clear they are concerned interest rates are too low at a time when the economy is already booming. ``We have to be very careful that we don't allow inflation to get out of control,'' New York Fed Bank President William McDonough said last week. Consumer spending likely rose 4.1 percent in the quarter ending today, according to a Bloomberg survey of economists. That would be the sixth consecutive increase above 4 percent. Auto sales have approached record levels almost every month this year. Consumer confidence rose this month to the highest level since 1968, the Conference Board reported yesterday. The unemployment rate, at 4.2 percent, is at a 29-year low, and job growth is expected to rebound in June after stalling in May. Analysts expect 210,000 new jobs to have been created this month, up from just 11,000 last month. Beige Book The Fed's most recent survey of regional economic conditions, known as the beige book, noted ``many employers have broadened their searches from local to regional and national levels,'' and that ``persistently tight labor markets have resulted in many reports of increased wage pressures.'' While the Fed signaled a wait-and-see position, investors ahead of today's meeting were betting there would be at least another half-point rise in the overnight loan rate by early next year, judging by the 5.56 percent yield on the January fed funds futures contract. ``One small change (in interest rates) is unlikely to have a material effect on the strength of demand,'' said Mike Moran, chief economist at Daiwa Securities America, Inc. in New York. Political Effect The political impact of the rate increase, or even a series of hikes, is likely to be limited because the chances of a U.S. recession are still remote, analysts said. Then-President George Bush blamed the Greenspan Fed in part for his 1992 loss to Bill Clinton. In 1990 the Gulf War and rising oil prices sent the economy into recession. Bush argued the FOMC was too slow to stimulate the economy by cutting rates, which had been raised as high as 9.8 percent in 1989. The Fed's options were limited then, however, because consumer prices rose an average of 4.4 percent in each of the four years of the Bush presidency. Over the past three years the consumer price index rose an average of just 1.9 percent. And instead of a recession, Democrats can campaign on growth averaging 3.9 percent for the past three years. ``If we see a series of increases, it would be only to cool down what the Fed sees as an overheated economy,'' said Kim Wallace, a Washington analyst with Lehman Brothers, Inc. ``That's not good for any party. If Democrats want a good economy to run on they should welcome it.'' Fewer Voters Only 10 members of the Federal Open Market Committee voted on the increase, instead of the normal 12 -- seven Fed Governors and five Fed Bank presidents. Fed Vice Chairman Alice Rivlin, who is resigning effective July 16, did not take part. There is also an open seat; the Clinton administration has not replaced former Governor Susan Phillips, who resigned 18 months ago. The Fed's Board of Governors also left the more symbolic discount rate on loans to banks by the Fed system unchanged at 4.50 percent. Fed policy-makers last raised the fed funds rate on March 25, 1997 -- a quarter-point increase to 5.5 percent. After holding rates steady for the next 18 months, the FOMC lowered the federal funds target to 4.75 percent in three quarter-point steps on Sept. 29, Oct. 15 and Nov. 17. In that time, the Fed also lowered its more symbolic discount rate to 4.75 percent from 4.50 percent. For all the talk about what the Fed might do in the future, Greenspan told members of Congress this month he's not sure what the central bank will do. ``It is very tough to forecast what is going to be involved,'' Greenspan said. ``But since monetary policy can be changed within a minute's notice, we don't have to have a whole series of planned changes one way or the other.'' |