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Pacific Stars And Stripes (Newspaper) - May 20, 1997, Tokyo, Japan PACIFIC STARS AND STRIPES TUESDAY, HAY 20,1997 19* The only thing worsethan the Fed's raisingrates next week may benot to raise rates.The New York Times' Witt the Fed just wait?That's the nagging question"for investors ahead of Tues-day's meeting jof the. FederalReserve's policy-making com-mittee.Indeed, for many on WallStreet, the only thing worsethan the Fed's raising rates thisweek is the Fed's deciding notto raise rates. Why? Since manyinvestors believe that at leastone more rate increase" thisyear is inevitable, it makessense to them to get it out of theway now.In contrast with March, whenanalysts were overwhelminglyconvinced that the central bankwould raise short-term interestrates rather than hold themsteady, sentiment on WallStreet is split .about what theFed will do. Inflation is practi-cally nonexistent, and the ro-bust growth of the first quarterappears to be fading — reasonsfor the Fed to hold off.But if the Fed leaves its -tar-get rate at S.5 percent Tuesday,uncertainty may dog the finan-cial markets and stocks andbonds are more likely to experi-ence sharp ups and downs thissummer, extending the roller-coaster ride of recent months."It makes for a more-uncer-tain market and, therefore, thepossibility of a more volatilemarket," said Richard Berner,the chief economist at the Mel-lon Bank in Pittsburgh.Unless the economy slowsmuch more than expected, ev-ery new economic report willbe scoured for hints of what theFed's policy-makers will dowhen they gather again in July.And given titie erratic nature ofa lot of the government^ statis-tics, markets could be in forsome wild swings.What would be especiallyto%h is a string of economicreports indicating that the slow-down in consumer spending inApril was simply a pause ratherFile photoFed Chairman Alan Greenspan, SeSt, who met with Chinese President Jiang lemin in Beijing last week,will be on center stage Tuesday when Federal ieserve governors meet to discuss interest rates.than a genuine downshift in theexuberant pace earlier thisyear. Traders would concludethat the economy was toostrong for the Fed to feel confi-dent that inflation would re-main under control, reversingthe sentiment underlying therecent rally. Interest rateiwould mdve higher and stockprices lower.With a rate increase thisweek, the outlook would be dif-ferent, even if stocks and bondstumble initially.On one hand, if the slowdownis confirmed in economic re-ports for May and June, then aFed rate increase this weekwould clear the way for a mar-ket rally. With two Fed rate in-creases already in the bag, in-tvestors could fairly concludethat the central bank wouldwait quite a while before actingagain. '"•On the other hand, even if theeconomic news turns out to beless comforting to Wall Street,the Fed's back-to-back rate in-creases would help squelchspeculation that the centralbank would try a third rate in-crease so soon. And the confi-dence that the Fed was ahead ofthe curve would help cushionanyfall.The Fed, of course, has totake a lot more into accountthan just the markets. And per-haps the biggest force weighingagainst an immediate rate in-crease is the one Fed officialsnever like to talk about: politics.The criticism of the Fed frompoliticians and commentatorshas been sharp enough since itsquarter-point increase" inMarch that Alan Greenspan,the Fed's chairman, went out of,his way recently to deliver anunusually detailed defense ofthe central bank. The snipingwould certainly increase if theFed lifts rates again this week,especially because it is so hardto persuade elected officials ofthe need to act before a newinflationary surge is detectable."Launching a pre-emptivestrike against inflation has to bedifficult in any political con-text," Berner of the MellonBank said. The Fed wants to bepre-emptive but not premature."If the Fed is premature," hesaid, "it erodes its public sup-port and its political support forwhat they do and their inde-pendence,"Moreover, the underlyingeconomic rationale for a rateincrease, in the eyes of someWall Street economists, hasweakened in recent weeks. Wil-liam Dudley, 'the chief U.S.economist at Goldman, Sachs &Company, just changed his viewThursday, saying that "the oddsfavor the Fed standing pat.""Citing the Fed's decision lastsummer not to raise interestrates despite a burst of growthin the sprjng, Dudley said thatGreenspan "has shown a will-ingness to be patient when theeconomy is slowing."Indeed, even analysts wholean toward a rate increase ac-knowledge that the Fed hasplenty of reasons to be patient.The Producer Price Index hasfallen four months in a row, in-cluding a 0.6 percent decline inApril. The Consumer Price In-dex is up just 2.5 percent in thelast 12 months, while the moreclosely watQhed EmploymentCost Index rose less than 3 per-cent. The decline in April retailsales is also a sign that the op-portunity to raise prices re-mains limited. And the bal-anced-budget agreement inWashington helps ease fears.The Fed has already movedonce this year to brake theeconomy by raising its federalfunds target — the rate bankscharge one another for over-night loans.But Bothers contend that theweight of evidence tilts slightlyin the other direction. Theystart with the exceptionally lowunemployment rate. Since lastMay, it has dropped to 4.9 per-cent from 5.5 percent. Althoughmost experts applaud an econo-my capable of generating jobsfor almost everyone who wantsone, the fear is that the joblessrate is so low that it is just amatter of time before inflation-ary pressures bubble over.The 5.3 percent average un-employment rate for the last 12months is the lowest since theyear ended February 1990,when inflation was clearly onthe rise and the economy wasonly a few months from fallinginto recession. Other than thatbrief period, unemployment hasnot been so low in nearly aquarter of a century. :.Ny'As for real growth, which hasaveraged about 4 percent in thelast year, the economy has notexpanded at such a rapid pacefor a full year since 1987. Be-fore that, the last three quartersof 1984 and the first of 1985added up to another strongyear. But at that time the elson-omy was still rebounding fromthe severe 1981-82 recessionand labor markets were nottight Unemployment averaged7.4 percent and was still at 6.2percent in 1987.So for all the talk p/a neweconomic era, it is no surmisethat Greenspan is worried thatconditions today are simply toogood to last. In defending theFed's March 25 raje increase inhis speech recently, the Fedchairman said the move was"taken not so much as a conse-quence of a change in the mostprobable forecast of moderategrowth and low inflation for latxer this year and next, but ratherto address the probability thatbeing wrong had materiallyincreased." % „... To Robert Barbera, the chiefeconomist of Hoenig & Co., thatmeans the Fed's job is "to make. sure that growth isn't so briskover the next 12 months that itlowers the unemploymentrate," But even with that inmind, he says, this week theFed could still leave Wall Streetwaiting; V < .: :'.'-. ; "- ,••••.'••Lockheed Martin largest defense contractor againThe Associated, PressWASHINGTON — LockheedMartin Corp. remained the na-tion's largest defense contractorfor a second year in a row, thePentagon said Friday.The Pentagon's annual listingof major defense contractorsshowed that Lockheed had $12billion iir contracts in 1996, upfrom $10.5 billion the previousyear. The figures cover the fis-cal year that ended Sept. 30.McDonnell Douglas Corp. re-tained its No. 2 position with$9.9 billion in contracts.Lockheed beat out McDon-nell Douglas for first place lastyear after the new corporationmaterialized hi a merger ofLockheed Corp. ,and MartinMarietta Corp.Lockheed Martin, based inBethesda, Md., makes a widerange of military hardware, in-cluding Trident and Hellfiremissiles, the C-5 Galaxy trans-port plane, the F-16 Falcon andF-22 Raptor fighter jets; andcommunications gear for de-fense satellites.McDonnell Douglas, based inSt. Louis, makes the Navy's F-18 Hornet fighter, the AirForce's F-15 Eagle fighter, theC-17 transport; and the Army'sApache helicopter and missiles,including the Tomahawk andHarpoon.General Motors Corp, of De-troit rose from fourth to thirdplace with $3.2 billion in con-tracts, up from $3 billion theyear before.It produces power transmis-sion components for the Army'sAbrams tanks and other partsfor Bradley Fighting yehicles,as well as other missiles andaircraft parts.In fourth place was RaytheonCorp. of Lexington, Mass., mak-er of the Patriot air defense sys-tem and other missiles as wellas defense electronics, with $3billion in contracts.One big gainer was General,Dynamics Corp. of FallsChurch, Va.,n maker of Abramstanks, Seawolf attack subma-rines, Aegis destroyers andStinger and Tomahawk mis-siles. General Dynamics rosefrom llth to fifth place, with$2.7 billion in contracts, upfrom $1,7 billion.Filling out the top 10 were:.6. Northrop Grumman, LosAngeles", whose products in-clude the B-2 stealth bomberand tiie MX missile system aswell as defense electronics: $2.6billion.7. United Technologies Cbrp.,Hartford, Conn., maker of mili-tary aircraft engines and com-ponents, helicopters and de-fense electronics: $2.6 billion.8. The Boeing Co., Seattle,which makes numerous mili-tary aircraft: $1.7 billion.. 9. Litton Industries Inc.,Woodland Hills, Caiif.,*maker ofAegis destroyers, ships and oth-er aircraft: $1.7 billion. /10. General Electric Co.,Fairfield, Conn,, which makesmany aircraft engines and mis-sile components: $1.5 billion.
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