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America's New War: Fed Cuts One Half Percentage Point
Aired September 17, 2001 - 08:23 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.
PAULA ZAHN, CNN ANCHOR: I have an expert who can help us better understand what that means -- Andy Serwer from "Fortune" magazine.
Does that just show the level of concern the Fed has right now about the state of this economy?
ANDY SERWER, "FORTUNE": I think that -- yes, I think you hit the nail on the head, Paula.
I think it's a good thing. I was just talking to a very wired-in trader just five minutes ago, who anticipated a rate cut, but he thought it would happen later after trading began, because that way the Fed would see how bad things would be if the market actually did take a big hit.
I think what you're seeing is the Fed is concerned on the front end wanting to preempt any sort of market drop. This really helps Wall Street, and I think it really shows them that the Fed is ready to make a concerted effort to keep the economy going -- to keep stocks up.
ZAHN: We're all getting lost in the math in this story, but is this, in fact, the eighth time interest rates have been dropped this year?
SERWER: Yes, that's right.
ZAHN: Who will this rate drop benefit most?
SERWER: Well, immediately it's going to help Wall Street, because it's going to give people on Wall Street confidence that the Fed is there for them to help the economy, to make money cheap for banks and for consumers, to help them go in and borrow money and to keep the economy going. But it's going to be pervasive. It's going to help everyone across the board.
ZAHN: I don't know whether you were able to hear Chairman Grasso's interview with Lou Dobbs, but I thought he used some interesting words. He said, this economy is the leader of the 21st century global economy, but then he acknowledged that there will be some, in his words, "slight dislocation."
What's he talking about?
SERWER: A slight dislocation is a euphemism for stocks dropping. Let's face it...
ZAHN: OK. That was a real nice way of saying that, wasn't it?
SERWER: Well, you are absolutely right. Again, it's interesting the Fed did this before the open. You know, the good news they did it to preempt a drop, and the bad news is maybe they were concerned stocks were really going to drop.
This trader I was talking to thought that stocks might drop 600, 700, 800 points. At that point, the market would pause, and traders would look for a rate cut. Now, they've got their rate cut, it will be interesting to see. It sort of throws a lot of strategies off, because people had anticipated this big drop, then the rate cut. But instead, they got the rate cut first -- so just more swirl to the story.
ZAHN: OK. So take us through the swirl. So now that the strategy has changed, then what?
SERWER: Well, then what is the big question. I think what you're going to see is a smaller drop. You're going to see people sitting on the sidelines right now. We've seen stocks in premarket trading down 5 percent, 6 percent -- big stocks like Microsoft, Cisco and Intel. I think they may kind of trend back up, so the drop at the open may not be so bad.
Again, it's hard to tell where things will go later in the day -- very, very hard. But I think this will stop the market from taking a big hit at the open.
ZAHN: All the big financial gurus are out there saying, don't panic, don't sell. It is significant that Warren Buffett of Berkshire Hathaway is now saying that there might even be some real good buys today. He is not going to sell; he may even be buying.
SERWER: Yes.
ZAHN: What should that mean to anybody out there?
SERWER: Well, I think that you have to be really careful about going in and buying at this point. You really want to just watch the action, particularly in the a.m. here. I think that it's really, really important for investors just to sit back and watch. I think the market is going to bounce around like crazy right now. And it's probably a really good idea just to sit there and watch the big boys play.
ZAHN: But sit there with your seat belts on.
SERWER: Absolutely.
ZAHN: Andy Serwer, thank you...
SERWER: Thanks, Paula.
ZAHN: ... for your insights. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
