WASHINGTON -- The Federal Reserve's failure to cut short-term rates last week left analysts scratching their heads and wondering whether policymakers are committed to another easing of monetary policy.

The 12-member Federal Open Market Committee is scheduled to meet tomorrow to review policy following the Labor Department's report Friday that the unemployment rate in September edged down to 7.5% from 7.6%, the third straight monthly decline.

"I think the market still thinks we're going to get an easing," said. William Griggs, managing director of Griggs & Santow Inc.

But like other analysts, Mr. Griggs said he has some doubts that Fed officials will cut rates again before the November elections. Some said officials may have concluded that the employment report showed enough evidence that the economy is still breathing to make a case against further monetary stimulus.

"The real question is whether they will hold off until after the election," said David Wyss, senior vice president for DRI/McGraw-Hill. "My guess is they will."

The Fed made clear that it was not altering course when it refrained from adding reserves to the banking system, despite a technical need to push down the federal funds rate. A shortage of reserves has left the federal funds rate above the 3% target.

A much anticipated cut in the discount rate to 2.5% did not materialize either.

The prevailing opinion now within the FOMC is that the Fed has done enough rate-cutting for now, and that any more would just risk the proverbial "pushing on a string," said James Annable, chief economist for First National Bank of Chicago.

Many members of the committee feel that "monetary policy has played out its ability to influence production and employment in this phase of the cycle," he added.

Since July 1990, the Fed has eased rates 18 times, bringing down short-term rates to levels that have not been seen in decades. Last week, three-month Treasury bills traded as low as 2.63%, and lower mortgage rates have fueled an avalanche of refinancings. The Mortgage Bankers Association reported last week that mortgage loan applications in the week ending Sept. 25 were up 95% compared to last year.

Mr. Annable said Fed policymakers increasingly believe they cannot influence tight bank lending policies, low consumer confidence, debt burdens, and other structural economic problems that do not have much to do with interest rates.

Others said the jobs report, which President Bush describes as "encouraging news" because of the drop in the jobless rate, was

ambiguous enough to keep Fed V

policymakers shy of election year publicity on the sidelines.

"The tradition of the Federal Reserve is to maintain a very low profile around election time, particularly when you have a Republican board of governors," said Edward J. Campbell, chief economist for Brown Brothers Harriman & Co. "I don't think they want to be accused of trying to influence the election one way or the other. This kind of report gives enough cover to remain neutral, even though it was not a good report."

The drop in the unemployment rate recorded in the Labor Department's household survey came largely on a decrease of 164,000 people in the work force that more than offset a decrease in employment. Labor officials said the main reason the jobless rate declined since June was that there was virtually no employment growth, suggesting people became discouraged and were no longer looking for work.

The nonfarm payroll survey shows jobs decreased 57,000, in part because of the loss of summer jobs under a federal hiring program for young people. But excluding summer jobs, nonfarm payrolls rose only 40,000, with continued losses in construction and manufacturing.

The average work week for private nonfarm payroll employees fell to 34.3 hours from 34.6 hours, and average weekly earnings dropped $3.62 to $365.98.

Sen. Paul Sarbanes, D-Md., vice chairman of the congressional Joint Economic Committee, called the employment figures "devastating news for the American economy," adding that they "dash any hope for an imminent recovery."

Sen. Sarbanes disputed President Bush's comment that the job market seems to be getting slightly better.

"I fail to see how the job market can be described as improving when jobs disappear, wages fall, and people grow so discouraged about their employment prospects that they drop out of the labor market," he said.

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