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US Fed seen cutting rates sharply on Wednesday

The US Federal Reserve will begin a two-day meeting on Tuesday amid widespread conviction it will cut interest rates by another half-point to rejuvenate the world's largest economy.

While the meeting starts at 1.30 p.m. on Tuesday, an announcement on interest rates is not due out until about 2:15 p.m. on Wednesday.

Fed policymakers are getting an unusually early start to their meeting this time, gathering Tuesday morning to discuss how to manage the US central bank's securities portfolio as the government works to pay down the nation's debt.

Normally the Fed begins its two-day meetings, which occur twice a year, at 2:30 p.m. on the opening day and then at 9 a.m. the following morning.

The Fed's policy-setting Federal Open Market Committee will also on Tuesday outline its economic outlook and will discuss Chairman Alan Greenspan's twice-yearly monetary testimony to Congress, which is set for Feb. 13.

Rate decision eagerly awaited

But what Fed-watchers really want to know is the central bank's decision on interest rates.

Economists almost unanimously believe the Fed, armed with stacks of data showing economic growth has slowed abruptly, will cut rates by 50 basis points.

Greenspan told lawmakers last week that growth had "slipped very dramatically," to the point it may be "close to zero."

While growth has declined, price pressures have remained fairly subdued, giving Greenspan free rein to cut rates in bold moves as he tries to avert a recession and keep the nation's record economic expansion alive.

The FOMC meeting comes four weeks after the Fed shocked financial markets by slashing rates by an unusually sharp half-percentage-point, the biggest cut since mid-1992. The move came between regular meetings, an extremely rare event.

In the statement announcing the Jan. 3 decision -- the first inter-meeting move since a 25 basis point cut in November 1998 -- the central bank cited weakening sales and output, declining consumer confidence, tight financial market conditions and waning consumer purchasing power due to higher energy prices as evidence that the economy needed a boost.

Most economists note that things are looking a little better since the Fed's move. US stock markets have stabilised and, according to anecdotal reports, consumer spending -- which accounts for two-thirds of economic activity -- is recovering.

Confidence is key

Still, gauges of consumer confidence have declined.

Earlier this month, a University of Michigan survey showed consumer sentiment in January plunged to its lowest level since June 1996. The Fed will have more data on consumer confidence to chew over after the Conference Board on Tuesday releases its widely watched report for January.

Falling confidence typically leads to cutbacks in consumer spending, the main engine of growth in the nearly $10 trillion US economic behemoth.

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