Case Grows For Lowering Interest Rates

By John S. McClenahen On Nov. 6, just one day after the U.S. midterm elections, Chairman Alan Greenspan and his colleagues on the Federal Open Market Committee will either leave short-term interest rates unchanged or, as seems increasingly likely, lower them for the first time this year. The influential federal funds rate has been at 1.75% since Dec. 11, 2001, but in recent weeks durable goods orders and unemployment insurance data, in particular, have suggested the U.S. economy recovery from the 2001 recession is far slower than anticipated. Even bullish Merrill Lynch & Co. is forecasting just 2.5% inflation-adjusted GDP growth in the current calendar quarter. Meanwhile the 6-year-old Index of Investor Optimism jointly calculated by UBS AG and the Gallup Organization fell to an all-time low this month, declining to 29 from the 60 it registered in September. For the first time in the survey's history, fewer than half of investors believe now is a good time to invest in the markets. What's more, according to the survey, only 38% of investors say they're optimistic about U.S. economic prospects during the next 12 months, down 11 percentage points from 49% in September.

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