--- By Greg Robb ----
WASHINGTON (AFX) - Federal Reserve board chairman Alan Greenspan's pessimistic assessment yesterday of the short-term economic outlook raises the likelihood of additional cuts in the federal funds target rate beyond the expected 25 basis point reduction on Aug 21, economists said.
As a result of the chairman's testimony to the House Financial Services panel, some economists for the first time are projecting an additional 25 basis point rate cut on Oct 2, which would bring the funds rate down to 3.25 pct.
"I read him as saying we'll get easing for as long as it takes, and that as far as he can tell -- that might be a while," said Rus Shelton, US economist with Nesbitt Burns in Toronto.
"The Fed's outlook is quite weak. They won't be surprised by more than one easing step ahead," Shelton said.
Brian Fabbri, chief economist at Paribas Capital Markets, said Greenspan's message was simple: "the economy is weaker than we all thought," with risks that remain "all to the downside."
The financial markets had expected Greenspan to be optimistic, and were surprised by how negative he proved to be, Fabbri said. The Fed chairman has cast doubt on Fabbri's own forecast that the economy would begin to recover in September and that the last rate cut would be in August, he said.
Steve Slifer, chief US economist at Lehman Brothers, the Fed forecast included with Greenspan's testimony, indicates the Fed is only expects GDP growth to average an "anemic" 2.25 pct over the second half of the year.
"They don't seem to be expecting a really vigorous kind of rebound," he said.
Economists at Credit Suisse/First Boston told clients that although Greenspan "left the door wide open for a series of rate cuts if such medicine is required, we continue to expect that a 25 basis point cut at the August meeting will, in the event, mark the end of the easing program".
Jim Glassman, chief economist at JP Morgan Securities, said any rate cuts following the likely 25 basis point rate cut on Aug 21 would depend on the economic data coming out at that time. Any sign of strength would put the Fed quickly on hold, he said.