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rosenberg is one of the more rational voices on wall st, and has been somewhat negative on prospects for the u.s. economy. that has clearly changed.-jk
Merrill's Rosenberg Drops Forecast for Fed Rate Cuts
By Scott Lanman
June 4 (Bloomberg) -- David Rosenberg, Merrill Lynch & Co.'s chief U.S. economist, abandoned his forecast for Federal Reserve interest-rate cuts this year after the central bank reiterated it's more concerned about inflation than economic growth.
``It's a Fed that is very clearly willing to tolerate a prolonged period of economic malaise to get what it wants, which is price stability,'' Rosenberg said in an interview.
The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, the weakest in more than four years. Yet the slowdown has failed to alter the Fed's outlook for growth to resume a ``moderate pace'' and its stance that the risks of faster inflation outweigh those for slower growth.
Rosenberg said recent comments by Chicago Fed President Michael Moskow and the Richmond Fed's Jeffrey Lacker indicated that the central bank wants to see its preferred inflation gauge lower before considering reducing the benchmark interest rate. Also, record-high stock-market indexes make cuts less likely, compared with 2001, when the Fed reduced rates as shares tumbled and the economy slipped into recession, Rosenberg said.
The U.S. unemployment rate was 4.5 percent last month, the same as April, and the Fed's preferred inflation gauge has run at about or above the 2 percent upper end of several officials' comfort range for three years. The Fed has left its benchmark interest rate at 5.25 percent for almost a year, and traders see little chance of any change through the end of 2007.
Rosenberg's earlier forecast of a 4.25 percent year-end federal funds rate was among the lowest of economists surveyed by Bloomberg News. Merrill Lynch, the world's biggest brokerage, named Rosenberg chief North American economist in 2002.
``It is plain to see that only when we either see a major setback in the capital markets or an economic slowdown that precipitates a move to a 5 percent unemployment rate or a 1.5 percent core inflation rate, only then will the Fed believe it is in a position to shift its bias, let alone begin to cut rates,'' Rosenberg, 46, said in a report today.
In the Fed's most recent statement, after Chairman Ben S. Bernanke and his colleagues met May 9, the central bank said its ``predominant policy concern remains the risk that inflation will fail to moderate as expected.''
rosenberg is one of the more rational voices on wall st, and has been somewhat negative on prospects for the u.s. economy. that has clearly changed.-jk
Merrill's Rosenberg Drops Forecast for Fed Rate Cuts
By Scott Lanman
June 4 (Bloomberg) -- David Rosenberg, Merrill Lynch & Co.'s chief U.S. economist, abandoned his forecast for Federal Reserve interest-rate cuts this year after the central bank reiterated it's more concerned about inflation than economic growth.
``It's a Fed that is very clearly willing to tolerate a prolonged period of economic malaise to get what it wants, which is price stability,'' Rosenberg said in an interview.
The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, the weakest in more than four years. Yet the slowdown has failed to alter the Fed's outlook for growth to resume a ``moderate pace'' and its stance that the risks of faster inflation outweigh those for slower growth.
Rosenberg said recent comments by Chicago Fed President Michael Moskow and the Richmond Fed's Jeffrey Lacker indicated that the central bank wants to see its preferred inflation gauge lower before considering reducing the benchmark interest rate. Also, record-high stock-market indexes make cuts less likely, compared with 2001, when the Fed reduced rates as shares tumbled and the economy slipped into recession, Rosenberg said.
The U.S. unemployment rate was 4.5 percent last month, the same as April, and the Fed's preferred inflation gauge has run at about or above the 2 percent upper end of several officials' comfort range for three years. The Fed has left its benchmark interest rate at 5.25 percent for almost a year, and traders see little chance of any change through the end of 2007.
Rosenberg's earlier forecast of a 4.25 percent year-end federal funds rate was among the lowest of economists surveyed by Bloomberg News. Merrill Lynch, the world's biggest brokerage, named Rosenberg chief North American economist in 2002.
``It is plain to see that only when we either see a major setback in the capital markets or an economic slowdown that precipitates a move to a 5 percent unemployment rate or a 1.5 percent core inflation rate, only then will the Fed believe it is in a position to shift its bias, let alone begin to cut rates,'' Rosenberg, 46, said in a report today.
In the Fed's most recent statement, after Chairman Ben S. Bernanke and his colleagues met May 9, the central bank said its ``predominant policy concern remains the risk that inflation will fail to moderate as expected.''
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