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Experts expect Fed to cut rates

Washington, Nov. 6 (Reuters): In a bid to ward off some of the chill settling over the slow-moving US economic recovery, Federal Reserve policymakers were widely predicted to cut US interest rates to fresh four-decade lows on Wednesday.

An overwhelming majority of Wall Street analysts expect the US central bank’s Federal Open Market Committee (FOMC) to lower rates for the first time this year in the face of evidence showing the economy’s pace is rapidly cooling.

“No monetary policymaker wants to see this economy slide back into another recession,” said economist Lynn Reaser of Banc of America Capital Management Inc. in St. Louis, Mo. “It now appears that monetary policy is facing a significant loss of confidence and that is likely to make the Fed inclined to provide some offset,” Reaser said, adding the most likely FOMC outcome seemed to be a quarter-percentage-point cut in the trend-setting federal funds rate to 1.50 per cent.

A poll by Reuters on Friday of primary dealers—Wall Street firms that deal directly with the Fed—found fully 19 out of 20 predict the Fed will try to energise the sluggish recovery with a jolt of cheaper credit.

Fourteen saw a quarter-percentage-point reduction, while five predicted a more aggressive half-point slash. At the last meeting of the FOMC on September 24, policymakers opted to keep rates unchanged, but two voting members of the committee broke ranks and urged an immediate rate cut.

The US economy completed four quarters of expansion through this year’s third quarter, averaging about a 3 per cent annual rate of growth after contracting for three straight quarters at the beginning of 1991.

But the recovery has hinged on consumers’ willingness to keep spending on new cars, homes and other goods, while businesses have been reluctant to step up the plate by boosting investment—and in fact have helped undercut consumers through vigorous cost-cutting, layoffs and delayed hiring.

Labour department figures issued last Friday showed 5,000 fewer US jobs in October, a second straight month of sliding payrolls. And on Monday, the outplacement firm Challenger, Gray and Christmas Inc. said the number of planned job cuts announced by US companies shot up to 176,010 last month—about 7,600 jobs lost every business day.

The uncertainty about the economy’s future has weighed on consumers. The Conference Board’s Consumer Confidence Index slumped in October to a nine-year low—79.4 from 93.7 in September.

On the horizon looms the crucial holiday shopping season, the weeks between Thanksgiving and Christmas when many retailers do the bulk of their annual business, so plummeting confidence figures were seen as a red flag for policymakers.

“If consumers rein in their spending to any degree at all, we will be in recession,” Mark Zandi of Economy.com said.

Economists believe the nation’s manufacturing sector has slipped back into recession. The commerce department reported on Monday that orders for costly manufactured goods weakened 2.3 per cent in September to $ 318.06 billion after dipping 0.4 per cent in August.

According to last Friday’s payrolls report from the labour department, factory jobs tumbled by 49,000 in October, while the private Institute for Supply Management reported a drop to 48.5 in its factory index from September’s 49.5. A reading below 50 shows the sector is shrinking.

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