WASHINGTON -- Federal Reserve policy-makers decided Tuesday to watch and wait for now after helping calm Wall Street with three rapid-fire interest-rate cuts this fall.
The central bank officials ended a closed-door meeting without any announcement, a signal they left the benchmark interest rate on overnight loans between banks unchanged at a four-year low of 4.75 percent.The U.S. economy's continuing strength, despite a world slump, means the central bank may hold off until well into next year before cutting rates again, economists said.
In fact, the three quarter-point cuts engineered by the Fed between Sept. 29 and Nov. 17 may be enough to sustain the U.S. economy through any remaining ripple effects from the global slowdown, according to economist Joel Prakken of Macroeconomic Advisers in St. Louis.
"I don't think there's going to be any further (interest-rate) easings," Prakken said. "Unless the economy really slows down very quickly and very sharply, I think they're going to sit and see what happens."
Other economists believe the United States' trade deficit, running at a record annual rate of $167 billion this year, eventually will brake the U.S. economy enough to trigger another rate cut, but probably not at the Fed's next gathering in early February.
"The bottom line is they're going to cut rates but it's going to be later rather than sooner," said economist David Jones of Aubrey G. Lanston & Co. of New York. "They may wait until March or May, and it may be that they won't cut as much, given how strong growth is now."
For now, economic damage from abroad appears confined to factories and farms. And economic growth in 1998 should come in well above 3 percent for the fourth time in five years.
The creation of service jobs has more than compensated for job losses at factories, holding the unemployment rate in November at 4.4 percent, just a notch above the 28-year low of 4.3 percent achieved last spring.
Next year, growth should continue, although at a more modest rate between 2 percent and 2.5 percent, analysts believe. That's partly because profit-starved corporations will cut back on investment spending and hiring.
If the expansion, which began in March 1991, lasts past next year, it would become the longest in U.S. history, surpassing even the 1961-69 expansion. That was sustained in its last years by the production of military goods for the Vietnam War.
The world economic crisis began in Asia last year and toppled the Russian economy before threatening Latin America this year.
The Fed's cuts in the fall were aimed not so much at the overall U.S. economy as at financial markets, which panicked after the Russian economy collapsed in August. U.S. stock prices dropped to lows for the year, and many business borrowers reported tighter lending standards.
Since the rate cuts, however, credit conditions have eased and stocks have rebounded. On Tuesday, the Dow Jones average of industrial stocks rose 56 points to close at 9,044. It was the first close above 9,000 in nearly two weeks, when the prospect of President Clinton's impeachment modestly unnerved markets.
Financial markets had widely expected the Fed's stand-pat decision, in part because of the resilience shown in recent economic reports and in part because policy-makers signaled after the last cut that they were done for a while.
At that time, they said "financial conditions can be expected to be consistent with fostering sustained economic expansion."