TOKYO (Reuters) - A Federal Reserve interest rate cut this week is no
sure thing and officials are not seriously considering a half-point
reduction in overnight rates, the Wall Street Journal reported on
Tuesday without citing sources.
The article by Greg Ip, the Journal's Fed watcher who is known for
sometimes reflecting the views of senior central bankers, said
policymakers view this week's decision as a choice between a
quarter-point cut to 4.5 percent and not moving at all.
Investors have widely expected the Fed to cut rates at a two-day meeting
ending on Wednesday, following a half-point slash in September, to limit
the economic damage from the housing market's incessant slide.
Futures on the fed funds rate have shown a small chance of a half-point
cut.
Currency traders in Tokyo said the article helped nudge the dollar up
slightly from near record lows against the euro and multi-decade lows
against other major currencies.
Ip said perhaps the biggest risk for the Fed is that the market's
certainty on a pending rate cut puts a burden on the central bank to
deliver.
"But the current market environment is more fragile than usual, and thus
the consequences of disappointing the market are potentially more
damaging. Against that, the Fed will have to weigh the risk that a cut
will stoke inflationary psychology," Ip wrote in the article on the
Journal's Web site, www.wsj.com.
The Fed can mitigate such risks with its post-meeting statement by
either leaving the door open to a future cut if it does not move this
week or by dampening expectations for future monetary easing if it does
lower rates, Ip said.
Ip said the case for keeping policy on hold comes down to the economic
outlook.
While the housing market has deteriorated further, there has been little
evidence of spillover into the broader economy and Fed officials "don't
appear to have significantly altered their forecast of a return to
moderate growth next year," Ip said.
Copyright 2007 Reuters