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More Interest-Rate Cuts Are Coming -- Though Probably Smaller

Compiled By John S. McClenahen A month before the next scheduled meeting of the Federal Open Market Committee, Chairman Alan Greenspan is signaling that additional cuts are likely to come. The current period of sub-par U.S. economic performance "is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response," he says in classic Greenspanese. But think in terms of 25-basis-point cuts in the influential federal funds rate from here on, not of the five 50-basis point cuts that have occurred so far this year. The reason? By the fourth quarter of this year, the economy will start reflecting the monetary kick of previous cuts. Or, as Greenspan phrases it, "We also need to be aware that our front-loaded policy actions this year should be providing substantial support for a strengthening of economic activity later this year." The federal funds rate is now at 4%.

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