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Kandel on FOMC meeting
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August 18, 2000: 7:55 a.m. ET
Wall St. looks beyond interest rates at Fed's next policy-setting meeting
By CNNfn Financial Editor Myron Kandel
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NEW YORK (CNNfn) - I can't remember so little buzz about an impending meeting of the Federal Reserve's policy-making Open Market Committee this close to the event --- at least during the current interest-tightening cycle --- as there is right now.
The big day is Tuesday, and Wall Street is just about unanimously agreed that the central bank will stand pat and not raise rates. And with the Presidential election approaching, it's very unlikely that the Fed will increase rates before then. Some economists don't expect any more hikes for the rest of this year. Others say that if the present slowdown in the economy turns out to be a hard landing instead of a soft one, the next interest rate move could even be a decrease.
 In addition to recent good news on inflation, the Fed can take heart from an impressive gain in productivity, and indications that that surge is not transitory. Fed chairman Alan Greenspan has said he believes this pickup is a permanent result of the technology boom that is transforming the American economy. If so, that will enable the economy to continue to grow with inflation remaining under control and corporate earnings holding up.
Bruce Steinberg, Merrill Lynch's chief economist, says productivity gains tend to lag technology spending by roughly two and a half years. "Since tech spending has risen at a 25 percent rate during the past two years," he says, "productivity gains should remain strong." Noting that some industries have shown little or no gains thus far, he "guesstimates" that over-all productivity growth is still being underestimated by a full percentage point. That's the kind of statement that's sure to warm the hearts of Greenspan and his fellow central bankers.
As the Fed presses the pause button, it might be instructive in this globalized economy to look at what's happening around the world. Just last week, the Bank of Japan announced its first interest-rate increase in a decade, and Norway's central bank raised rates as well. Over the last year, central banks all over have been raising rates along with the Fed.
Ed Hyman, chief economist of the International Strategy & Investment economic consulting firm, who keeps track of such things, says the Bank of Japan hike was the 113th central bank tightening over the last 14 months. And even though the Fed may be done tightening, other central banks are not, he says, predicting another hike by the European Central Bank next month.
Hyman also notes that it takes 12 months for changes in short-term interest rates by the G-7 industrial companies to influence the U.S. economy. Since tightenings started 14 months ago, he adds, "U.S. activity should just now be starting to slow."
So with a policy-making meeting just days away, many people on Wall Street are now focusing not on whether the Fed will raise rates, but on whether the economic slowdown it has orchestrated will be too soft, too hard or just right. 
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