With inflation slowing to a crawl, analysts expect the Federal Reserve to become even more aggressive at its upcoming policy meeting. And this time around, the move could be more effective than many investors think. Expectations for a half-point cut at the June 25 meeting jumped to 60% Friday, after the producer price index, a measure of prices at the wholesale level, fell 0.3% in May. A quarter-point cut has already been fully priced in, as concerns about deflation have intensified and economic data have continued to disappoint. A 25-basis-point reduction would leave the Fed funds rate at just 1%. Whether or not a 13th rate cut will help the economy rebound in any meaningful way remains to be seen. But some analysts think the Fed's chances of succeeding this time around are much better than they have been in the past. "Although the Fed cut rates 11 times in 2001
and once more in 2002 there really wasn't much change in financial conditions," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. and contributor to TheStreet.com's sister site RealMoney. "The dollar rallied, stocks fell and credit spreads widened, which weakened the economy. Now, in 2003, all these 'transmission effects' are working in unison to support economic growth, which increases the chances that the Fed will be effective this time." James Griffin, international economist and strategist at Aeltus Investment Management and another contributor to RealMoney, agrees, noting that prior rate cuts took place during some of the most intense adjustments in the economy. "They were pushing against the tide all along," he said. Not only was the market recovering from a huge technology bubble in 2001 and 2002, but the country also faced a devastating terrorist attack and two wars. Today, geopolitical tensions have moderated and some of the excesses in the economy have been wiped out. "It is a different backdrop against which they're working," Griffin said, noting that a big slide in the dollar also raises the odds that the Fed's next move will be effective in spurring growth.