Continued Concerns May Prompt More Interest Rate Cuts

Jan. 13, 2005
By John S. McClenahen Probably Federal Reserve Chairman Alan Greenspan doesn't yet know whether he and the other members of the Federal Open Market Committee (FOMC) will cut short-term interest rates further -- perhaps by 25 basis points -- when they ...
ByJohn S. McClenahen Probably Federal Reserve Chairman Alan Greenspan doesn't yet know whether he and the other members of the Federal Open Market Committee (FOMC) will cut short-term interest rates further -- perhaps by 25 basis points -- when they meet on Jan. 30 and 31. But they remain clearly concerned about near-recession levels in U.S. manufacturing, an unexpected late-2000 decline in construction, and high energy prices. "The risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," the FOMC said Wednesday, when it opted not to wait until its scheduled month-end meeting to cut the influential federal funds rate to 6% from 6.5%. "Clearly, the Fed saw a recession as a present danger as the forces curtailing economic growth have gathered steam in recent weeks," asserts Jerry J. Jasinowski, president of the National Assn. of Manufacturers, Washington, D.C. "This unusual [Fed] action was taken in large part because much of manufacturing is on the verge of recession -- due to the cumulative effects of a sharp drop in capital spending, a freezing-up of credit availability, a weakening stock market, high energy costs, and an overvalued [U.S.] dollar in key international markets." And the prospect for additional cuts, possibly to near 5% by yearend? Jeremy J. Siegel, a finance professor at the University of Pennsylvania's Wharton School, recently noted federal funds futures suggest three short-term interest rate cuts by mid-2001. This week, the first occurred.

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