NEW YORK -- U.S. interest rates, dramatically slashed by the Federal Reserve in December, may slide further in 1992 as the economy continues to struggle early in the year, analysts are saying.
Like the Fed itself, economists have reassessed the economic slump's severity and have reduced their interest rate forecasts in the past two weeks. They cut their federal funds estimate for June to 3.5%, from the current 4% target, and today's 6.5% prime rate could be cut to 6% or lower, they said.
Rate Cut on Jan. 10?
The Fed unexpectedly cut its key discount rate by a full percentage point Dec. 20, as poor Christmas sales and rising unemployment claims deepened gloom on the economic outlook. Many economists now say the next rate cut could come as soon as Jan. 10, when data are due on December employment in the nation.
An economic turnaround is not expected until the second quarter and, even then, growth is foreseen as anemic.
"The difference between up 1% in the second quarter and down 0.5% in the first quarter is not enough that you can feel it on Main Street," said Cary Leahey, economist at Lehman Government Securities Inc.
A handful of analysts, however, believe that the Fed is done easing and that the consumer will recover enough confidence to begin spending in the second quarter.
Economists in Conflict
"We think Fed policy is quite expansionary, and with equity prices up, consumer confidence will turn," said Ram Bhagavatula, chief financial economist at Citicorp Global Finance. "Also, with all the refinancing, you should see real money put into consumers' pockets."
But most economists believe consumer fears run deep and will continue until employment and income data give them cause to be less guarded about spending.
"This will be over when the consumer develops confidence that things are getting a little better and starts spending a little money," said Darwin Beck, Fed watcher at First Boston Corp. "And from all I'm seeing, I don't think consumer confidence is going to rebuild that quickly."
