Federal Reserve policy makers are likely to lower the overnight bank lending rate tomorrow to a seven-year low of 3.5 percent to provide a spark for the sluggish US economy.
In cutting rates for a seventh time since Jan. 3, Fed Chairman Alan Greenspan and the other nine voting members of the policy-setting Open Market Committee also may signal that additional reductions are possible if growth doesn't pick up soon.
"The Fed is still watching the data for any signs of a bottom," said Nancy Roman, an economist at the G7 Group in Washington. Central bankers "will remain on the offensive until they see the economy turn up."
Business investment in equipment and software has declined for three straight quarters, the first time that's happened since 1982-1983. As a result, manufacturers have been cutting production in an effort to reduce inventories.
Compaq Computer Corp, the No. 2 manufacturer of personal computers, said last month it has reduced its factory inventory by US$300 million and a further US$400 million at distributors in the quarter. That brings the total reduction to US$1 billion in the first half of the year. Compaq is planning to cut stockpiles by US$200 million more at distributors in the second half.
Some company forecasts suggest demand for business equipment won't be picking up before the end of the year. Cisco Systems Inc, the largest maker of computer networking equipment, says sales will be little changed or fall 5 percent in the quarter that ends in October.
Of 78 economists surveyed by Bloomberg News, 76 forecast a quarter-percentage-point reduction in the overnight rate tomorrow from its current 3.75 percent. Only two said they expect the central bank will leave rates unchanged.
The Open Market Committee has already lowered the benchmark rate by 2.75 percentage points, from 6.5 percent at the start of the year. Tomorrow's FOMC meeting begins at 9am Washington time with an announcement expected at about 2:15pm.
The economy expanded at just a 0.7 percent annual rate in the second quarter, the weakest in more than eight years, according to preliminary Commerce Department figures. Analysts say revisions due at the end of this month will probably show an even slower pace of growth -- and possibly that the economy contracted for the first time since the first quarter of 1992.
The FOMC has been trying to counter that slowdown with the most aggressive round of rate reductions in 19 years. If the Fed does as expected, the overnight rate will fall to the lowest since April 1994.
So far, the effect of the rate cuts has been largely psychological. Measures of consumer confidence has begun to rise after falling to five-year lows in February and April. That's helped give a lift to spending. Retail sales excluding automobiles rose in three of the past four months.
Auto sales have been supported by the biggest incentives and rebate programs in history, averaging over US$2,000 per vehicle in early August. That's helped boost car and truck production, the only bright spot for US manufacturers. Lower interest rates haven't spurred orders to manufacturers or production, and factories have been in yearlong slump.
While manufacturing production was unchanged in July after nine months of decline, almost all of it was due to a short-term surge at automakers.
"There is no sign of a bottom here," said Scott Brown, an economist at Raymond James & Associates in Saint Petersburg, Florida.
"We're still seeing declines in production, and it's likely we will see the weakness continue for at least a few more months."
The Fed's own survey of regional economic conditions found growth was stagnant at best in most parts of the US. during June and July. "Sustained weakness in the manufacturing sector spilled over to other businesses," the Fed said in its beige book report.
"Reports from most Federal Reserve districts point to slow growth or lateral movement in economic activity," the anecdotal survey said.
Since the beige book was released Aug. 8, analysts have been marking down their growth forecasts for the third and fourth quarters, and for next year. Lehman Brothers economists anticipate the economy expanded just 1.3 percent in the current quarter.
"The Fed has some more work to do," said Ethan Harris, chief economist at Lehman Brothers. "The beige book should dispel any doubts that additional Fed easing on Aug. 21 will be necessary." Fed officials have stressed that because changes in interest-rate policy take many months to filter through the economy, the effects of the earliest reductions this year should only now be starting to be felt.
Some companies are beginning to see a light at the end of the tunnel. Chipmakers Intel Corp and Texas Instruments Inc said some customers have lowered inventories of components, and the two expect orders to rise.
The semiconductor industry "has bottomed out," said Craig Barrett, chief executive of Intel, earlier this month during a press conference in Penang, Malaysia. Intel expects the computer industry to rebound in the third and fourth quarters, driven by back-to-school and holiday sales.
Orders from wireless customers have been rising at Texas Instruments, Chief Financial Officer William A. Aylesworth said last month. The Dallas company's chips run two-thirds of the world's cellular phones.
There are hopeful signs in some recent economic data. The unemployment rate has remained at about 4.5 percent for the past four months, even as companies announced thousands of job cuts over the same period.
US sales of new single-family homes rose 1.7 percent in June to 922,000 units at an annual pace, the highest level in three months, boosted by mortgage rates that are more than 1 percentage point lower than the same time last year.
"Demand is so strong that we aren't able to keep up with construction," said David Weiss, chief financial officer at Beazer Homes, the Atlanta-based builder with a record number of homes ordered but not yet completed.
Because of that, however, some analysts said additional Fed rate reductions may provide less of a lift than might otherwise be expected. "The interest-rate sensitive sectors of the economy were never that depressed in the first place," said Bill Dudley, chief economist at Goldman Sachs & Co in New York.
Without the additional boost, the Fed may decide to lower the overnight bank rate to 3 percent by early next year, he said.
Trading in federal funds futures contracts suggests policy makers probably won't reduce the overnight rate much further. The implied yield on the December federal funds futures contract is 3.25 percent, a half percentage point below the current rate and a quarter point below where it's likely to be after today's Fed meeting.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique