Fed Committee Not Expected To Cut Rates

WASHINGTON - When Federal Reserve leaders meet next week to discuss credit policy, they will be looking at an economy struggling out of recession and will probably decide against further cuts in interest rates to push it along, economists say.

"I think they will decide to do nothing," said David Seiders, chief economist for the National Association of Home Builders. "They are going to judge the current stance of policy to be about right at this time."

The Federal Open Market Committee is scheduled to meet next Tuesday and Wednesday to discuss monetary policy to pursue over the next several weeks. The committee is made up of the Federal Reserve Board and five of the Fed's regional bank presidents.

While all 12 of the Fed bank presidents will participate in the discussions, only five are voting members of the Open Market group.

Their discussions and decisions will come at a critical time for the U.S. economy. The policymakers face the delicate balancing act of trying to assure economic recovery without fueling inflation.

The latest economic data suggest the 11-month-old recession is ending. Data for May, reported on Tuesday, showed existing-home sales up for the fourth month in a row and orders for expensive manufactured goods posting their biggest rise in over a year.

But the strength and duration of the recovery is far from clear, as Federal Reserve Chairman Alan Greenspan recently reminded Congress. He said it appeared the recession was bottoming out, but he was not sure a recovery had begun.

"We don't see any measurable uphill thrust," Mr. Greenspan said. "We are still too close to it to know for sure."

Greenspan Optimistic

But Mr. Greenspan and other monetary policy makers are optimistic the economy can enjoy modest economic growth with little danger for causing inflation.

"I am confident that we can come out of this with a recovery without ... reigniting inflationary forces," Mr. Greenspan told the House Ways and Means committee.

Fed Governor John LaWare echoed Mr. Greenspan's views. "I think we all have a pretty optimistic feeling about the trend lines," Mr. LaWare said in an interview. "The underlying core rate does seem to be moving in the right direction."

But the bond market and some economists are not convinced the inflation outlook is so rosy. Long-term interest rates have remained high as the Fed lowered short-term rates.

The Fed aggressively lowered interest rates from late last year through early spring in an effort to push the economy out of recession. The last move was on April 30, when the central bank lowered its discount rate, the interest it charges banks for loans, to 5.5%, from 6%.

Fed Governor David Mullins told the Senate Banking Committee last week that easing credit further would threaten to push long-term rates even higher. "If the long end does increase, we run the risk of making the downturn more severe," he said.

Policy makers thus may be content for now to wait and see if what they have done is enough to bring the economy around.

Some economists believe the economy will dip back into recession after a brief period of growth as businesses rebuild dwindling inventories.

But many agree with Federal Reserve officials that the economy will enjoy a modest level of growth through 1992.

"For each of the six quarters preceding the recession, [gross national product] grew at an annual rate of less than 2%," said Joel Popkin, a Washington-based economic consultant.

"That is kind of unique. There is no reason to think we can't have a muddling-through, positive-moving economy for six quarters after the recession."

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