The Federal Reserve almost certainly will leave interest rates untouched tomorrow when its monetary policy committee sits down in Washington. But that hardly makes the meeting irrelevant.
This will probably be the first such session in 18 months with credit easing as a serious topic, some economists say. Recent data show the economy slowing faster than forecasts earlier in the year.
"I expect considerable talk, but no action. It's too soon," said Philip Braverman, the chief economist for DKB Securities Corp., New York.
He and others feel the late August meeting of the Fed's open market committee is likely the earliest moment at which the central bank may actually shift to a more accommodative stance on credit.
By then, the government's estimates of the gross domestic product for the second quarter will be available. Mr. Braverman anticipates a dramatic slowing to perhaps a 1% annual growth rate, which would be well under the 2.5% rate the Fed wants.
Also by then, he said, the Fed will have had about six months to prepare the public and the markets, as well as to arrive at a consensus among its own members, for a shift in policy.
He pointed out that before its last change in stance the Fed began hinting about firming rates six months or so before actually doing so.
But it will likely do in an indirect manner that Mr. Braverman said amounts to what might be labeled "reverse english."
In 1993, while the markets were still operating on the premise that further easing might be ahead, various Fed officials began talking about the difficulties and pitfalls of further easing, he said.
The Fed eventually began raising rates in February 1994. A string of rate increases followed, most recently last January.
But the Fed, led by chairman Alan Greenspan, began hinting in February that another change in policy might be down the road, depending on the strength of the economy.
"It takes time for them to announce their intentions, think about them, and receive reassurance from the markets and from the economic data," said Mr. Braverman.
"In doing so they have the freedom to change their minds and back away from positions until a course of action becomes so obvious to everyone that, in a collegial atmosphere, everybody votes for an easing," he said.
If the six month timetable for laying the groundwork of a policy shift holds true again, the August FOMC meeting would be the first moment for action, he said.
"If not August, then sometime between then and Thanksgiving to ensure that there will be a Christmas," he said.
Mr. Braverman anticipates that second and third quarter data will be weak enough that the Fed will likely not risk a poor fourth quarter.
"The significance of a weak fourth quarter is much greater than the second and third quarter because many businesses earn half their annual profits in the Christmas selling season," he said.
The Fed will want to bolster confidence if it is needed then, he said. By that time a presidential election year will also be nearing.
And Mr. Greenspan's term as Fed chairman will be coming to a close. He is said to desire reappointment and his case would surely be helped if he appeared in firm control of an expanding economy.
An economist with a different economic outlook also thinks the Fed will almost certainly stand pat on Tuesday.
"What the Fed is really looking for to move is more clear-cut evidence of further softening without these diversions like a bounceback in mortgage applications," said Gary Schlossberg, the chief economist at Wells Fargo Bank, San Francisco.
"Against the backdrop of increases in the (consumer)price numbers, there is some uneasiness about going full-bore and easing sooner rather than later," he said.
Mr. Schlossberg sees weakness in business conditions for several more months, but he maintains that "the economic fundamentals are just not as weak as they normally would be on the eve of a recession, or in a very later expansion period."
He believes the economy will ultimately pick up momentum again, probably later this year, along with an uptick in inflation.
Those developments are in turn likely to prompt a further tightening in credit by the Fed, the San Francisco economist said, "sometime in the fall at the earliest, but most probably sometime in 1996."