Market Expects Fed's Greenspan To Succeed in Slowing Economy

Alan Greenspan has made a "preemptive attack on economic growth - not on inflation," says economist Arnold Moskowitz. "He definitely doesn't like strong growth. There is no inflation."

Many economists say the Federal Reserve chairman will get what he wants - slower growth later this year.

His aim: to snuff possible inflation by making it hard for firms to raise prices and for workers to seek raises.

Mr. Moskowitz, a Palm Beach, Fla., financial consultant, predicts growth in real domestic product, the national output of goods and services, will slip from a 4 percent annual rate in the first quarter to a 2.5 percent rate in the last half of the year.

That prospect is one reason for the stock market slump. It means slower growth in corporate profits.

If the economy doesn't slow, Mr. Greenspan and his policymaking colleagues at the Fed will raise interest rates again soon, analysts say.

Moskowitz predicts a second 0.25 percentage point boost in interest rates at a Fed meeting May 25, and perhaps a third of the same amount in July. These would change the federal funds rate - the rate banks charge each other on overnight loans.

But opinions differ. "Maybe the Federal Reserve won't have to raise interest rates again," says Gary Thayer, senior economist at A.G. Edwards & Sons in St. Louis, looking at the employment numbers for March, which were released Friday.

Those statistics show the unemployment rate dropping to 5.2 percent from 5.3 percent in February and 5.4 percent in January. Job growth was moderate. Payrolls increased 175,000, somewhat less than the 200,000 anticipated by many economists.

But overtime in manufacturing was the highest in the past decade, and the length of the work week at 42 hours was a post-World War II high.

Events in the market are of interest to a much wider swath of Americans today. A recent survey commissioned by the National Association of Securities Dealers found that 43 percent of adults now own shares, compared with 21 percent in 1990 and 10 percent in 1965.

A larger Fed survey of family finances, released this year, found 15.3 percent of families owning stocks directly in 1995, 12 percent owning mutual funds, and 27 percent with 401(k)-type plans. Comparative figures for 1992 were 16.9, 10.4, and 19 percent.

One prop for the market has been baby boomers pumping money into mutual funds or other retirement-saving vehicles. The net flow of money into equity mutual funds reached $47.5 billion in the first two months of the year, according to AMG Data Services, an Arcata, Calif., group that tracks mutual fund flows. But stock funds suffered almost $330 million of net redemptions in the week ending last Wednesday.

Even more important to the stock market, according to Moskowitz, has been a run of corporate mergers and acquisitions. Some $570 billion have been announced. But some deals have fallen apart.

For example, on Friday the Federal Trade Commission rejected a proposed $4 billion merger of two office supply discounters, Staples Inc. and Office Depot Inc.

In looking at market prospects, Henry Kaufman, a veteran Wall Street analyst, watches the interest rate on two-year Treasury notes - now about 6.4 percent. Should that rate rise to 7 to 7.25 percent, he says, it will attract money out of the stock market.