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Analysts Anticipate Fed Action

Aired May 15, 2001 - 14:14   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU WATERS, CNN ANCHOR: We could hear within a minute of what the Federal Reserve Board has decided to do on interest rates. We have the managing editor of "LOU DOBBS MONEYLINE" -- Lou Dobbs with us; welcome back, Lou.

LOU DOBBS, "LOU DOBBS MONEYLINE": Lou, thank you.

WATERS: This time, they are not deciding whether or not there will be an interest rate increase or cut. Everyone is saying that it will be a cut, why is that?

DOBBS: Well, I think that there is a broad hope and likelihood that the Fed will cut. The question being whether it will be 25 or 50 basis points. The Fed, as you know, has already cut 2 full percent. However, I still think that it's always wise when, following Mr. Greenspan's Federal Reserve to hold out the possibility that he will do nothing, as well.

So, I don't think that anyone should take it as a certainty, precisely what the Fed will do. Although, as you suggest, the market is certainly discounting a full half point cut.

WATERS: There are those who say, Lou, that more important then how much the cut will be, is the language that tends this decision on whether or not there will be anymore cuts. This could be the end of the line, they say,

DOBBS: Well, it could be, and I am not certain that those same people are saying that the size of the cut doesn't matter.

WATERS: OK, the size of the cut is 50 basis cuts. We just heard.

DOBBS: We've just heard that the Dow is down 4 percent, the markets had been expecting that, as I said, in and discounted in. So, we're likely to see some of these numbers on the index has reversed themselves in quick order.

But the fact is that the language that the Fed uses, and we'll have that directive here shortly, as soon as our correspondents get it from the Fed to us. The fact is that they'll probably move to basically a neutral stance. And I believe that that language will be important.

It gives the Fed time to make some other decisions in the next FOMC meeting.

WATERS: And that means what? Neutral stance means what?

DOBBS: In terms of interest rates suggesting to investors and to the financial markets that they will hold even in terms of the direction of rates for a period of time. That would be my guess. We'll have to see what the Fed actually says.

WATERS: The Dow, as you anticipated, has kicked in. It's already back to even. So this is good news for the market, but some were saying that, perhaps Greenspan would have held back 25 basis points just to show the markets that he was not doing this for the markets?

DOBBS: I think that anybody who thinks that Alan Greenspan is worried about who is calling the shots, Edward Yardeni, who is the chief investment strategist with Deutsche Banc is sitting here with me, Lou, and I would like to ask him that question. The idea that Alan Greenspan is concerned about who is leading whom here. Any doubt in your mind, Ed?

EDWARD YARDENI, DEUTSCHE BANC: No, Mr. Greenspan calls the shots. The markets have almost a cult of the personality by Mr. Greenspan. There is no doubt, he definitely runs the monetary policy and the credit policy.

DOBBS: Are you happy with this move? Do you think that it's the right direction?

YARDENI: I think that it's the right direction and I think it's important for the Fed to start giving the body language that they've done quite a bit, they've done really quite enough. And it's time for them to rest and let this easing work its magic. It will take some time, but I think that it will work.

DOBBS: And I have been just told that the directive says that the risk -- that there is no inflationary risk, and the fact is that there is great concern, as we have seen from the Beige Book report concern from the weakening economy.

YARDENI: It could take some time as you know. It could 6, sometimes 12 months for the full impact of easier policy to work. The risk the Fed has, is that if they keep easing here, is that most of the stimulus will go into the stock market. It sounds good, but we don't want another bubble.

DOBBS: In particularly, in terms of the (UNINTELLIGIBLE) currency, in terms of a considerable number of complaints about the constriction and the availability of loans to small business and medium-sized businesses in particular. Do you think that we will see a quick resolution of what appears to be an inconsistent policy between the two agencies?

YARDENI: Well, I think we are going to start to see some easier credibility, but again, we want the banks to be careful, and not to throw credit at anybody. That's really how we get into this mess in the first place.

DOBBS: So, this is a balanced approach by the OCC and the Fed.

YARDENI: I think so. And apparently, these folks talk, and I don't think that they will work (ph) across purposes.

DOBBS: And at this juncture, your bet is that we we'll stay here at 4 percent for a while.

YARDENI: I would think that the Fed will pass at the next meeting and just decide to take the next meeting off, might be a good idea.

DOBBS: And what do you think the markets will do from here?

YARDENI: The market's not cheap. It's down from its highs, but I think that it will rest here for awhile, too.

DOBBS: All right, Edward Yardeni. As always, good to talk to you.

YARDENI: Thank you, Lou.

DOBBS: And Edward Yardeni, chief investment strategist at Deutsche Banc. And Lou Waters, that is it from here.

WATERS: All right. Lou Dobbs, thank you.

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