---- by GREG ROBB ----
WASHINGTON (AFX) - The Federal Open Market Committee remains worried about the health of the economy and, as a result, left the door wide open for further rate cuts, economists said.
"It is full steam ahead as far as easing goes," said James O'Sullivan, economist at UBS Warburg.
As expected, the FOMC cut the funds rate by 50 basis points to 4.0 pct and maintained its policy bias toward continued easing.
Analysts were watching the statement closely for clues that the easing might come to an end soon, but "there was absolutely no hint the easing cycle can be wound down anytime soon," O'Sullivan said. "The whole tone of the statement was consistent with the idea that there is more easing ahead," he added.
Michael Moran, chief economist at Daiwa Securities America Inc, in a letter to clients, said the FOMC policy statement was only altered slightly from the previous statement on April 18 "implying that officials remained deeply concerned about the downside risks facing the economy and remain prepared to ease further if conditions warrant." Most analysts said they expected a 25 basis point reduction in rates on June 27, but a few suggest there would be another 50 basis point cut.
"The door is wide open for another rate cut - it's not over yet," said Chris Rupkey, vice president and senior financial economist with Bank of Tokyo Mitsubishi. The Fed futures market has now priced in a 25 basis point cut in June, he said.
Ian Morris, chief economist at HSBC Securities, said he expects the FOMC to cut rates by 25 basis points in June and another 25 basis points on Aug 21.
Many economists said that rates are not likely to fall below the 3.0 pct level reached in Sept 1992 and kept until Feb 1994.
Analysts said the most critical part of the FOMC statement was the assertion that "inflation is expected to remain contained."
Jim Glassman, senior domestic economist at J.P Morgan Securities, said the statement underscored the fact that, although there is concern in the financial markets about inflation, "this is not the Fed's concern."
"With global markets slowing down and the U.S. growing at half its potential, there isn't anybody that is going to be worried about inflation," Glassman said.
However, some economist do believe that the FOMC may be sowing the seeds for higher inflation down the road.
"There is a real worry out there that we get a reacceleration in growth without a reacceleration in business investment" that has kept productivity high and inflation low, said Diane Swonk, chief economist at Bank One.
Mickey Levy, chief economist at Banc of America Securities, said the FOMC "has placed a far higher priority so far on managing the economic slowdown, and preventing a capital spending collapse, than on ensuring that its policy remains consistent with its longer-term goal of continued low, stable inflation."
"This may be a serious mistake...with higher energy costs constraining the growth pace of U.S. output, there is a growing chance that another acceleration of dollar spending growth will rsult in rising inflation," Levy said.