WASHINGTON -- The 12 voting Federal Reserve policy-makers are deeply split on whether to ease short-term interest rates again or hold them steady, depending primarily on how they see economic growth and inflation developing, analysts say.
Analysts are similarly divided, although the financial markets seem more convinced that a Fed move to ease rates if days away.
But whatever stance the majority of the Fed Open Market Committee takes at its meeting which ends today, the catalyst for any Fed action could be the June employment report with its news on the creation of non-farm jobs, the analysts said.
Focusing on the Federal Open Market Committee's vote, analysts said a divided panel might leave the ultimate policy decision to Fed Chairman Alan Greenspan.
"This is truly Greenspan's call, because you are really in a close split," said David Jones, chief economist at Aubrey G. Lanston.
Mr. Jones said the financial markets seem to expect the Fed to ease rates but that he sees the chances as "somewhat below 50-50."
Of 12 Fed voters, he said, those probably reluctant to ease rates are Wayne Angell and John LaWare, and district Fed bank presidents Jerry Jordan from Cleveland and Thomas Melzer from St. Louis. Edward Kelley and Kansas City Fed bank President Thomas Hoenig might side with them, he said.
Joseph Liro, money-market economist at S. G. Warburg, said he saw a "2 out of 3 chance" that the Fed will ease rates before the July 21 testimony to Congress.
Mr. Liro said Fed policy-makers going into the committee's meeting might be split 8-4 in favor of easing rates. He said he thinks the Fed is "disappointed" with the momentum in the economy.
Among the economic indicators that have slipped lately are retail sales, durable-goods orders and new-home sales. How serious those setbacks are to the moderate recovery under way is open to question.
Analysts agreed that because of mounting Fed resistance to easing rates, any cut would not exceed a quarter of a percentage point in the federal funds rate.
They also said they expected such a move to nudge banks into cutting their prime rate, now at 6.5 percent.
At their last meeting, on May 19, Fed policy-makers apparently voted to leave monetary policy unchanged and to halt their nine-month trend toward easing credit, which means they stood ready to ease between meetings.
The shift in emphasis "was a carefully considered view, and six weeks later they are not going to jump on the other side of the fence" and vote for an easing bias again, said Lyle Gramley, chief economist at the Mortgage Bankers Association of America and a former Fed governor.
Mr. Gramley, who put the chances that the Fed will ease rates at 30-70, said he did not "accept the notion that the numbers [economic data] have looked that weak recently."
Louis Crandall, chief economist at R.H. Wrightson & Associates said there is a 75 percent chance of easing. "The only thing that would stand in the way would be a significant improvement in the employment numbers," he said.
Mr. Crandall said the "tone" of economic activity going into June was weaker than many economists had expected, although no one doubted the economy was still growing.
"It's not that you want to stimulate an economy that's going forward; it's that you want to have a cushion in place in case failing confidence slows spending again," as happened last year, he said.
The Fed, eager to avoid repetition of last year's stall in the recovery, is keeping a close eye on job creation. New jobs are key to economic expansion.
The June employment report, to be released tomorrow, follows a disappointing report for May, when non-farm payrolls rose only 68,000 and the unemployment rate jumped to 7.5 percent from 7.2 percent.
Another ingredient in the Open Market Committee's decision is last week's call by President Bush for the Fed to ease rates. Although some Fed policy-makers may note the political pressure, analysts said others may be less likely to act for fear of compromising the Fed's independence.