MercoPress. South Atlantic News Agency

Another Fed interest rate cut?

The United Stated Federal Reserve concerned with the slow growth rate of the US economy could reduce interest rates further this coming week when the Open Monetary Committee meets again, reports The Washington Post.

Since the beginning of 2001 when the US economy dropped into recession that was estimated to last three quarters, the Federal Reserve successively relaxed monetary policy which has led to the lowest interest rates since the sixties.

The Fed rate inter-bank loaning now stands at a record low 1,25% and according to The Washington Post the main point of discussion at the Fed is how big a cut can be forecasted, a quarter or half a percentage point.

In recent hearings before Congress Fed Reserve president Alan Greenspan has expressed his growing concern about the long awaited strong recovery, with consumers and the service sector remaining almost stagnant, plus the possibility of deflation, when prices overall drop leading to a greater consumer and investor's retraction.

For the last three decades the Fed has been obsessed with combating inflation but since 2001 inflation has remained flat and immune to interest rate cuts.

The interest rate cuts are geared to stimulate consumer spending that represents 70% of the US Gross Domestic Product.

The latest data on the US economy continue to be confusing. While the Conference Board Index, a key measure of ten leading economic indicators, rose 1% in May (with advances in 8 of 10 indicators), the lack of business confidence persists. The University of Michigan consumer confidence index was down to 87,2 in June from 92,1 in May, despite expectations of a moderate increase.

The current account deficit increased in the first quarter to 136 billion from 128,6 billion in the fourth quarter of 2002, reported the Commerce Department.

Besides the number of workers receiving unemployment cheques remained at a 20 year high according to the Labour Department.

However the Advisory committee of the US Bankers Association was confident the US economy will grow at an annual rate of 3,5% in the third Q and 3,6% in the fourth Q.

"Catalytic growth factors are positioned: an aggressive monetary policy, an expansive fiscal policy and a weakened dollar, conform a perfect triptych of economic stimuli", said Stuart Hoffman chief economist and president of the advisory panel.