The Street This Week: The Fed in the Fourth Quarter

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A task force of the Financial Accounting Standards Board has determined that the terrorist attack of Sept. 11 was not an "extraordinary" event, in accounting terms — it hit everybody so hard it's the same playing field, just lower. Consumer spending gained disappointingly in August, personal income inched up even less. Construction spending shrank. And there was another contraction in manufacturing, the 15th month in a row, but considering it was September it could have been much worse. A long gray Monday morning of economic numbers that only add up to one thing: The third quarter was the first quarter of our recession.

Welcome to the fourth quarter. Stocks opened October 1 with a sort of "so be it" attitude, slipping dutifully at the open, stabilizing quickly, slipping again. Nobody's feeling ecstatic, but no question there's some shopping going on. Volume is brisk. The Fed is going to cut rates again Tuesday — almost certainly — and yet movement to quality (Treasuries at home, the dollar from abroad) is discernible.

Greenspan was urging judiciousness to Congress last week about the fiscal stimulus, and they still listen to him — it's in the pipeline but not exactly gushing out just yet. Will Big Al take his own advice when he sits around the mahogany with the FOMC boys Tuesday and contemplates moving the fed funds rate toward "real" negative territory, making short-term money essentially free?

On the one hand, Greenspan can't call Sept. 11 an ordinary event. Whether or not we were headed for a recession before — and Greenspan's cutting had come almost to a halt before the planes hit — we're in one now, and a shock tends to suggest shock treatment. Cut to 2.5 percent, look around again at the meeting next month.

Yet as the shrugging relativists at the FASB suggest, Greenspan isn't looking at a fundamentally different economy, as the NAPM manufacturing numbers suggest. If the businesses have to lead us out of this thing while consumers take a short break, the corporate bleeding may already be stopping. The patient is wobbly, but it seems he's likely to pull through after all. For three years he's been on the whip end of the economy's wild ride, just missing every twist and turn — why should he do perverted things to the money supply if life is already going on? The rate cuts haven't exactly been the cure so far.

But inflation is still low, isn't it? The money isn't free just yet — not until Greenspan gets to maybe 2 percent. Another half-pointer to 2.5 is just a confidence move; it'll get taken back in a matter of months if we get our V-shape over the winter, and on the off chance we break through another floor he'll be glad he did it.

The rest of the week will be a pretty good one to find out how extraordinary the post Sept. 11 economic world really is. There's a decent flurry of numbers and news due, starting Tuesday with the Fed and ending Friday with unemployment, payrolls, hourly earnings and average workweek for September — figure on the foremost of those hitting 5 percent at long last.

But all that's just background music for what is already on its way to being a monster news week. The bin Laden asset-freezing continues, the Taliban says he's hidden in-country and practically dares us to bomb away. The Russians are arming the rebels. (Oh. And the Supreme Court disbarred Clinton.) Congress might reveal its thinking on the rest of that $100 billion in the wings, and the Pentagon could be ready to reveal a little might of its own.

For a market that remains vaguely fearful but seems nonetheless bent on spending its days haggling over the bottom, anything that smells of action could be the ticket to ride. The question will then be what such a rally would be made of. It would be built on the assumption that everything will go our way from here, abroad and at home, and if there is military action it's not too telegenic. (Consumers don't shop when they're watching the news.) It could be very fragile indeed.

It may not even happen at all, and the economy and the markets and the terrorists and the home front will just go into a nervous waiting game, all through the winter.