Evergreen's Patel looks for 50-bps Fed ease

NEW YORK (Reuters) - The Federal Reserve would be best served by a 50-basis-point interest rate cut at Tuesday's policy meeting, Margaret Patel, senior portfolio manager at Evergreen Investments, said on Tuesday.

"I think they'll do 50," Patel said at the Reuters Investment Outlook 2008 Summit in New York.

The 25-basis-point cut that many market participants expect from the Fed's policy-making Federal Open Market Committee could merely prolong the current lending crunch by encouraging borrowers to wait until the next rate cut, she said.

"The Fed knows what the issue is ... that it needs to flood this system with liquidity."

Some pundits have suggested that a 50-basis-point rate cut, matching the move the FOMC made in September to launch an easing cycle, would signal a lack of confidence in the financial system. Patel disagreed.

"I don't think going 50 would show panic at all. ... Very small incremental moves are really counterproductive," she said.

Patel said a larger, pre-emptive rate cut would likely not hurt the value of the dollar and would help promote a rebound in U.S. economic growth in the second half of 2008.

A half-point rate cut would take the federal funds rate to 4 percent from 5.25 percent before the September FOMC meeting. Patel said the end-point of the easing cycle could be "well under 4 percent" based on current growth and inflation rates.

Patel said the Fed will want to complete its rate-cutting cycle by mid-year so it can stand aside well before the 2008 presidential election in November.  Continued...