WASHINGTON -- It is a good thing that Wayne D. Angell is no longer a Fed governor, for even he believes he will be disappointed with the central bank when it holds its next interest rate policy-setting meeting in early July.
"They should raise the discount rate 75 basis points," Mr. Angell said last week. But he concedes that such extreme action is unlikely when the Federal Open Market Committee next meets July 5 and 6.
"There is one chance in three that the prevailing group will say 'Let's don't do anything just yet,'" said Mr. Angell, who is now chief economist at Bear, Stearns & Co.
Could Go Either Way
Mr. Angell said the upcoming Fed action is much harder to predict than action at the last open markets panel meeting.
"At this stage of the game," he said, "it isn't a straight one-way call."
"This one is quite different, in that the Fed, I believe, was hoping that they would be able to take interest rates off of the table," when they last raised rates, Mr. Angell said.
Gonzalez' Hackles Raised
Maybe it is a good thing that Angell isn't sure. The former Fed governor came under fire for correctly predicting the Fed's 50-basis-point increase in the discount rate in May.
House Banking Committee chairman Henry B. Gonzalez, D-Tex., suggested that Mr. Angell benefited from inside information and asked Fed chairman Alan Greenspan to put policies in place to ensure that former employees aren't able to use confidential information.
Mr. Gonzalez also recited reports that Mr. Angell charged $100 a minute for advisory services and asked: "Will I learn what happened at the last Federal Open Market Committee meeting if I dial 1-900-ANGELL?"
For now, Mr. Angell thinks there is one chance in three that the Fed will vote to raise by 25 basis points its target for the federal funds rate.
What Rate Means
That is the rate banks charge each other for overnight loans, which the Fed controls by deciding how much money to supply to bank reserves through its purchases and sales of government securities.
There is another chance in three that the Fed will decide to raise by 50 basis points the discount rate, which the Federal Reserve Banks charge banks for overnight loans.
And unless the Fed raises the discount rate, Mr. Angell thinks it should keep quiet about it.
Discretion Is Urged
The Fed should, "get away from announcing these teeny steps," Mr. Angell said. "You don't need to make front-page headlines out of every little gesture the Fed wants to make." The Fed should announce its interest rate moves one week after the action instead of the day it decides, Mr. Angell said.
"Monetary policy is so important that you want to have all the tools available that enable you to communicate in the market."
Announcing small interest rate changes, "is wasting the Fed's voice," he said.
