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CNN Sunday Morning

Economy Strong Ahead of Possible Fed Cut

Aired August 19, 2001 - 09:13   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MARTIN SAVIDGE, CNN ANCHOR: A lot of red ink coming in from investing reports investing reports on Wall Street. That leaves investors feeling very much black and blue. Now we may see another cut in the interest rates. The Federal Reserve is meeting Tuesday to decide what to do about the slumping economy.

CNN Financial News reporter Peter Viles is joining us now from new York.

Good morning to you.

It feels so much like this economy is teetering. It's got a real wobble, and we just don't know which way it's going to fall.

PETER VILES, CNN CORRESPONDENT: It really is, Marty. We had someone on "MONEYLINE" last week who said it was like the economy's balanced on knife's edge, and you really don't know which way it's going to tip one way or another. But it's been balanced that way for a number of months. I think most economists thought we would know by now if the economy's going to get worse in the last couple of months or get better, and we simply don't know at this point. The evidence is very mixed.

SAVIDGE: What are we looking forward to in the coming week, maybe the coming month? There's a key indicator here that is maybe going to mean positive news.

VILES: One thing to watch is the housing market. That is the one leg of this economy that is still standing. If the housing market can hang in there -- there's a big housing report out on Friday, new home sale -- if they can hang in there, that's a leg this economy can stand on. Americans feel pretty crummy about what's happened in the stock market, but a lot of them are sitting on a lot of wealth in their homes. The unemployment rate is low. As long as homes hold their value, this economy can probably hang in there.

That said, there is some worry that the housing market may be the next leg of this economy to lose some steam.

SAVIDGE: Is it fair to look at the stock market as sort of a barometer to all of us, because it's up one day, it's down the next day. Is it really a fair indication of where the economy is headed.?

VILES: Historically, it has not been. We had a market meltdown in 1987 that never really showed up as an economic event. But I think times have changed, and I think it is now a fair barometer.

If you look at the year as a whole, the Dow is down 5 percent. During that time, the Federal Reserve has cut in interest rates six times -- the most aggressive war on recession that Alan Greenspan has ever fought. The stock market's not responding. It's not responding because investors still don't clearly see the light at the end of the tunnel.

So I think it is a fair barometer for at least what's happening in corporate America, which is probably the weakest part of the economy right now.

SAVIDGE: I don't mean to put you out on a limb, but do you think you see another cut coming -- what's going to happen.

VILES: Definitely. Most of Wall Street expects a quarter point cut on Tuesday, which would be the seventh. The Fed has cut by half a point five times and ten a quarter point in June. The expectation is another quarter point. As always, investors are going to be very interested in about 100 words that Alan Greenspan says in a press release when they do the cut. what does he say -- does he say things are getting better, does he say that they are on high alert, which means that they could cut again, before the next meeting

But I think Wall Street is looking fort a quarter point. Some are looking for a half, but a half point would tell you that the Fed thinks things have gotten worse since June, and not better.

SAVIDGE: It would be very easy to get caught up in the gloom and doom in the daily basis, but in the big picture -- especially from the vantage point of the rest of the world -- how is the U.S. economy doing?

VILES: It's still the best economy is the world, and that's why the dollar has remained strong -- manufacturers would say stubbornly strong, negatively strong. But the health of the dollar has slipped in the last couple of weeks. The dollar shows you that the world thinks America is a pretty good place to put your money.

We still have low unemployment. W still have low inflation. We still have a solid housing market. We still have pretty decent consumer spending. So the economy, certainly, has not collapsed. You can build a worst case scenario about what might happen from here.

The economy is pretty good. I think if you ask anybody who remembers the last two recessions, particularly 1975, 1980, and 1982, they will say this doesn't feel anything like that.

SAVIDGE: Peter Viles, thanks for joining us this Sunday morning.

VILES: Sure thing.

SAVIDGE: Peter Viles, CNN Financial reporter.

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