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Fed officials mull cut
June 18, 2001: 2:24 p.m. ET

Presidents of Boston and Richmond Fed Banks discuss possible rate cuts
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NEW YORK (CNNfn) - When Federal Reserve policy makers meet next week to decide whether or not to cut interest rates for the sixth time this year to boost the United States economy, their choice may not be clear-cut, if comments Monday by two Fed officials are any indication.

First, Federal Reserve Bank of Boston President Cathy Minehan told a Boston research group she thinks there's a good chance the U.S. economy will recover by the second half of this year. But a recovery is by no means certain, she said, and she didn't know if the Fed had lowered interest rates enough yet to ensure it.

"The consensus forecast continues to see a pickup in the latter part of the year, and I think there is a good chance this is what will happen," Minehan said in an advance text of her speech. "But this is by no means a certain outcome, and the preponderance of current economic data suggests that, in the short run, downside risks are real."

But Richmond Fed President Alfred Broaddus, in separate comments, said the Fed doesn't have much more rate cutting to do after slashing short-term interest rates from 6.5 percent to 4.0 percent in five cuts this year, its most aggressive rate-cutting campaign since the last recession.

The "degree of monetary stimulus currently in place is already quite substantial by recent historical standards ... and we don't have a lot of leeway to reduce it further before we get to a level that can cause us difficulties," Broaddus told the Virginia Bankers Association.

Still, Broaddus warned that weakness in the manufacturing sector may spread to other areas of the economy.

"We don't know if the economy is bottoming out; and, if it continues to show signs of weakness, we may in fact need additional stimulus," he said.

He also said inflation is not an immediate concern, though the Fed needs at least to keep it "on our radar screens."

The comments came a little more than a week before the Fed next meets to discuss interest-rate policy. Analysts widely expect the central bank to cut rates again at the conclusion of a two-day meeting June 27, but there is some disagreement over how far the Fed will go.

According to a poll conducted by Reuters Friday, 19 of the 25 primary dealers that deal directly with the Fed in open market operations expect a quarter-percentage-point cut next week, while six dealers said they expect a more dramatic half-percentage-point reduction.

Broaddus is not a voting member on the Fed's policy-making committee this year, following the usual rotation among regional Fed presidents. graphic

- from staff and wire reports


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