---- By Greg Robb ----
WASHINGTON (AFX) - The outlook for Federal Reserve monetary policy remains "wide open," with possible future rate cuts beginning at the Oct 2 meeting dependent on the nature of the economic data to be released over the next six weeks, analysts said.
"Fed policy is very much data-driven now, even more so than usual," said Kathleen Stephenson, economist at CS First Boston.
Stephenson said there is a chance that the FOMC may have completed its easing cycle, but that she should also see a scenario where they have to ease "not once, but two or three more rate cuts."
Fed watchers said there were no surprises today. The FOMC cut its target for the federal funds rate by 25 basis points to 3.5 pct and maintained an easing bias. The Fed also lowered the discount rate to 3.0 pct from 3.25 pct.
"Pretty much everything here was as expected. There was nothing suprising in either the action or statement," noted Joshua Shapiro, chief US at Maria Fiorini Ramiriz.
And analysts said there was little new inflation to be gleaned from the "sparse" FOMC statement because it was very similar to the previous one.
The statement "carried a generally negative tone about near-term prospects," said Michael Moran, chief economist at Daiwa Securities America Inc.
Mark Vitner, economist at First Union Corp, pointed out that the only difference in today's FOMC statement was the view that "household demand has been sustained." The previous statement had noted a "weak expansion of consumption."
Vitner said he viewed this as a positive sign, suggesting that some Fed officials are "seeing the economy getting a little better." Vitner added the economy is currently "at the bottom, the low point of this cycle."
There is a clear split between those analysts who believe the Fed will now be able to hold rates steady at 3.5 pct level and those who expect another rate cut as soon as Oct 2 - but neither camp seems to argue with much conviction.
Shapiro of Maria Fiorini said the company's view is that the economy would gradually improve - not a smooth upward path, but enough to enable Fed officials "to sit on their hands."
Jim Glassman, chief US economist at JP Morgan, said he expects another 25 basis point rate cut on Oct 2 "but a lot depends on the data - we have a lot to find out."
Glassman explained that some uptick in consumer spending is a given with the tax rebate program underway, but said the key to the economy going forward is when the inventory adjustment cycle would be complete so that manufacturing could pick up.
Peter Kretzmer, senior economist at Banc of America Securities, attributed the negative reaction on Wall Street to the FOMC rate and statement as an indication that market participants had been looking for the Fed "to declare a bottom."