Fed Rate Cut May Only Have Minimal Impact

The Fed is expected to lower key interest rates by a quarter of a percentage point at its policy-setting meeting on Tuesday -- but the move is so widely anticipated that it is unlikely to provide a significant boost to the stock markets and the economy, analysts said.

``We've had so many cuts, that to get a sustainable boost, we're going to need real, tangible evidence that things in fact are strengthening,'' Henry Herrmann, chief investment officer at Waddell & Reed, was quoted by Reuters as saying.

``They have pretty much locked in another quarter-point rate cut,'' predicted David Wyss, chief economist at Standard & Poor's Co. in New York. ``(Federal Reserve Chairman) Alan Greenspan does not want another recession on his watch.''

A poll of 25 primary dealers of U.S. government securities last Thursday showed they unanimously expect the Federal Open Market Committee to cut the key federal funds rate by another 25 basis points on Tuesday.

The Fed has slashed interest rates six times so far this year, bringing its key federal funds rate on overnight bank lending down to 3.75 percent in an effort to jump-start stalled U.S. economic growth.

Retreating inflation has paved the way for further cuts by the Fed, which generally lowers rates to keep the economy from overheating and to contain price gains.

As always, investors will watch for any hints Greenspan gives about the economy and the potential for further rate cuts.

``I think that the market will get a little pop from it -- not so much from a cut, but because Greenspan will be careful about promising more if it's necessary,'' said Milton Ezrati, senior economic strategist at Lord Abbett & Co.

Still, a handful of Fed watchers would not rule out a return to a bigger half-point move, arguing that Greenspan and his colleages may want to deliver a pleasant surprise to Wall Street investors.

``We still have a very uncertain economic situation out there,'' said David Jones, chief economist at Aubrey G. Lanston & Co. in New York. ``The stock market is still walking on egg shells and the Fed has to have the market on its side to hope for any type of recovery any time soon.''

U.S. manufacturers issued a plea Monday for a bigger half-point rate cut, saying such a move was needed to help alleviate a slowdown in sales that has already forced them to eliminate 708,000 jobs.

In a letter to Greenspan, National Association of Manufacturers President Jerry Jasinowski said the bolder half-point move was needed to counteract ``a sudden and unexpected deterioration overseas'' which was raising the threat of a global recession.

However, many economists predicted the Fed would stick to a quarter-point move this week, especially since some Fed officials have expressed worries that the central bank could overdo the rate cuts, laying the groundwork for inflation troubles next year.

``There could be two interpretations of that,'' said Michelle Clayman, chief investment officer at New Amsterdam Partners, which oversees $1.1 billion in assets. ``One is, 'Gee, the Fed really wants to kick start the economy.' The other thing might be, 'Ooh are things worse than expected?'''

Reuters and the Associated Press contributed to this report.