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Fed seen changing stance
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December 15, 2000: 7:53 a.m. ET
Report: Central bank won't cut rates, but will acknowledge slowdown
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NEW YORK (CNNfn) - While Federal Reserve officials won't lower interest rates at next week's policy meeting, they are expected to shift their stance toward weighing concern about an economic slowdown equally with concern about inflation, the Washington Post reported Friday.
In the story by reporter John M. Berry, known for his close coverage of the Fed, the shift toward a neutral stance was seen as leaving the Fed's policy-making body, the Federal Open Market Committee, in a better position to respond to weakness in economic growth by lowering rates. That rate-cutting could take place next year -- by what analysts believe could be as much as 1 percentage point, according to the Post story.
At the past four FOMC meetings, members have said that inflation was the greater risk.
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Some analysts expect growth to slow to around 2 percent or 2.5 percent, the paper said, pointing to the possibility that the Fed will reduce rates by up to a full percentage point over the course of 2001.
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The Post said Fed officials have not yet suggested there is any urgent need to cut rates. And assuming the slowdown in growth -- to what analysts believe will be to an annual rate of around 2 percent to 2.5 percent -- is just a temporary pause followed by a rebound and much higher rates of growth, a shift to a neutral stance next week would give the Fed freedom to move back to expressing a greater concern about inflation, the paper said.
"We've got a slowdown, and a lot of people are quite nervous," Fed governor Edward M. Kelley Jr. told the Post. "That's quite predictable. . . . But it's far too early to make a judgment on where the slowdown might stop. If we had a touch-and-go and went back up to high rates of growth, that would be dangerous."
After raising interest rates six times between June 1999 and May of this year, the Fed has maintained those rates at the past four policy meetings. The rate hikes are seen as a key reason for the economic slowdown that is believed to have occurred over the course of the year.
The federal funds rate -- the target rate at which banks lend money to each other overnight -- is 6.5 percent. The discount rate -- the rate at which the Fed's 12 district banks lend directly to member institutions – is 6 percent. 
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