Today’s Washington Post report indicating substantial skepticism at the Fed about the advisability of entering a near-term easing mode tends to buttress our analysis of earlier this week that a go-slow approach remains the favored option at the central bank (“Crosscurrents,” December 11, 2000). The piece was penned by the Post’s veteran Fed reporter John Berry, whom senior Fed staffers often use to carry their message during periods of heightened speculation about forthcoming policy change. While a shift to a neutral stance at Tuesday’s FOMC meeting is now a foregone conclusion, “none of the Fed officials suggested there is, as yet, any urgent need to cut rates,” Berry writes. “Furthermore, in the view of a few, it is still possible for the slowdown in growth to be just a pause followed by a rebound to the much higher rates of growth of the past two years.” Almost incredibly, in fact, Governor Edward Kelley allowed himself to be quoted by name in the piece welcoming the slowdown as being “needed to keep inflation low.”

On its face, the Post report would suggest not only that a rate cut is out of the question at next week’s meeting, but that the odds are stacked against adoption of an easing bias. Based on the views presented by Berry, there is a fair degree of support at the Fed for an indefinite period of simply observing their handiwork without taking any action. A few qualifiers, however, are probably in order. First, Berry’s piece was based on interviews conducted with Fed officials “in recent weeks.” It’s possible that the latest developments are being viewed with somewhat less equanimity. Today’s industrial production report, for example, posted the second consecutive monthly decline for the first time since the summer-’98 global financial crisis. It also showed an Old Economy manufacturing sector virtually in recession, with non-high- tech output down by 1.2% over the past six months.

The continuing deterioration of the stock market environment also cannot be escaping notice, at least among policy makers – including Alan Greenspan – who profess some coherent understanding of market signals. The failure of equities this week to gain any positive ground on George W. Bush’s emergence as president-elect demonstrates that the rapidly decaying economic outlook is overwhelming whatever relief would otherwise have been expected upon resolution of five weeks of political chaos. In addition, at today’s close of 2653, the NASDAQ has given back all but 42 points of the explosive 274-point rally witnessed after Greenspan’s December 5 speech pointing the Fed toward eventual ease. Mere words, it appears, are no longer enough.