19 January 2001, 19:59  The Fed's surprise intermeeting 50 basis point ease earlier this month>

NEW YORK (MktNews) - The Fed's surprise intermeeting 50 basis point easeearlier this month did nothing to stem eroding consumer confidence, which fellagain in January following a mammoth drop in December. The University ofMichigan, which conducted its survey after the Fed cut its federal fund targetrate on January 5, reported its consumer sentiment index fell to 93.6 this monthversus 98.4 in December. Economists are calling the Michigan numbers"worrying" and say it further supports a 50 basis point ease at the next FOMCmeeting. January's preliminary consumer sentiment level represents a 14 pointdrop from November, the third largest 2-month decline on record, trailing onlyfalls reported in recession years of 1980 and 1990. The expectations index hasplummeted 17.4 points since November. Economists say bad news such assoaring layoff ennouncements, the incoming presidential administration'srecession "talk," a sliding stock market and soft manufacturing activity iscurbing consumers optimism. "The (negative) headlines are weighing heavilyon consumers," said Banc One chief economist Diane Swonk. But, "with anyluck this is the low point." While the deluge of worrisome indicators promptedmany to talk about the real possibility of a recession, two recent developmentssuggest consumer sentiment could turn around as early as the end of themonth, Swonk said. A surge in mortgage refinancing applications in January aswell as an uptick in same-store retail sales suggests the "consumer ain'tdead" and a bounce in sentiment could be on its way, said Swonk. Additionally,stocks are better and housing starts are up despite adverse weather in themidwest. Not all economists, however, are so bullish. UBS Warburg economistJeff Palma said consumer confidence most likely will not see a recovery untilthe overall economy rebounds. Palma said a "period of economic recovery" isnot on the horizon until the second half of the year. "I suspect the weakeconomic data will continue through the first and second quarters," said Palmawho expects consumer sentiment to deteriorate in tandem. The University ofMichigan's dismal data follows the Philadelphia Fed's grim report on regionalmanufacturing where the current activity index fell from -4.2 to -36.8 in January.Economists agree, however, that the recent numbers give more wiggle room tothe Fed to ease 50 basis points rather than 25 at the next FOMC meetingscheduled for the end of the month.

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