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Is even the Fed on hold?
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September 29, 1998: 7:26 p.m. ET
Ex-Fed governor Angell says deeper cuts may come, but not until November
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NEW YORK (CNNfn) - Former Federal Reserve governor Wayne Angell, now chief economist at Bear Stearns, shared his insider's perspective on Tuesday's Federal Open Market Committee (FOMC) decision to lower the federal funds rate to 5.25 percent with CNNfn's "Street Sweep."
A partial transcript of his comments follows.
JAN HOPKINS, CNNfn ANCHOR, STREET SWEEP: Now, you thought that the Fed was going to do more, is that right?
WAYNE ANGELL, BEAR STEARNS: Yes. I thought, with all of the hype that we probably had a discount-rate cut in the offing -- and I thought it was then evenly divided between 25 and 50 (basis points) on the funds rate -- but for the Fed not to have done the discount rate, it tells me that there was a stronger dissent on the FOMC than maybe we anticipated.
JOHN METAXAS, CNNfn ANCHOR, STREET SWEEP: And where do you see this process ending? Do you see further cuts? Do you see an ongoing debate at the Fed between that dissent and the majority?
ANGELL: It seems to me that this means that the Fed by and large is on hold until the November FOMC meeting, because we're not likely now to get a funds rate move by the chairman inter-meeting prior to the November election. So I think this means that we wait and see. Number one, we wait and see how the economy moves. Alan Greenspan did not say that the economy was weakening. He said he thought he saw the first signs of erosion and he expected it to weaken, but my outlook for the economy is somewhat more robust than what Greenspan portrayed.
HOPKINS: So do you think that there are others in the Federal Reserve board that share your view that our economy's quite healthy?
ANGELL: I'm sure that many of them -- including Presidents Poole and Jordan and other presidents -- mentioned that M-2 growth being 8 percent above the fourth-quarter level at an annual rate and surging over the last six weeks at a 12-percent rate, there probably was a lot of thought that the Fed actually is supplying a lot of liquidity as it is. And the weakness of the dollar against the mark, I'm sure did not go unnoticed.
METAXAS: We've had many economists saying they believe the Fed has been behind the curve in lowering interest rates. We've got the politicians on Capitol Hill making comments now. The former labor secretary writing an op-ed piece in the New York Times. What impact do all these political statements have on the Fed and do you think they perhaps influence Greenspan's decision in any way?
ANGELL: No. I don't think so. I think the only impact upon Greenspan's decision and his choice was what took place at the FOMC today. And I'm just convinced that the arguments made by members of the committee were somewhat more strong in regard to the Fed and the fact that the price of gold has rebounded. The dollar is off 9 percent against the mark. All of these factors undoubtedly tended to moderate the chairman's wish to go any farther than he did today.
HOPKINS: You know, it's interesting. As we've been talking, the stock market has moved from negative territory to positive territory. Do you think that on second reflection the market sees this as a positive?
ANGELL: Well, certainly I believe that when Alan Greenspan first spoke on Sept. 4 and first gave this encouragement, it did look at that time as if the downward correction in the equity market had not yet been completed.
And yet after the statement, the equity market had that very strong rebound, and we found our way from (Dow) 7,400 back to 8,000. So probably there's some notion that some of the turmoil wasn't quite as significant as it had seemed to be earlier.
METAXAS: Alan Greenspan will be speaking on Capitol Hill on Thursday on the issue of hedge funds and their impact on the financial system. Do you think we'll get any market-moving statements out of that testimony?
ANGELL: Not really. I really think that one of the factors that might have caused Greenspan and the FOMC committee to have held up might have been the notion that after all it did appear that the Federal Reserve's hand was somewhat stronger in the private sector's decision to recapitalize Long-Term Capital Management.
And so maybe Alan Greenspan didn't want to say, "OK, well, on top of that, we're going lower the funds rate by 50 basis points or make a cut in the discount rate." It may very well have been that that was a moderating influence on the chairman. 
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