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Federal Reserve Cuts Interest Rates Again

Aired June 25, 2003 - 15:01   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.


JUDY WOODRUFF, CNN ANCHOR: We begin with a question. How low can they go? The Federal Reserve cut interest rates again, today trimming a key short-term rate by one quarter of a percentage point to its lowest level in 45 years. This is the Fed's latest attempt to stimulate the economy by encouraging consumer spending and business investment.
We'll go to the New York Stock Exchange shortly to see how the markets are reacting, but first, what does the Fed decision mean for you? My colleague, Lou Dobbs, joins us from New York. Lou, thank you for being here. What does this mean in terms of what the Fed thinks about where the economy is going?

LOU DOBBS, HOST, "MONEYLINE": Judy, good to be with you. What it means on an 11 to 1 vote is that the Fed right now thinks there's a greater risk of weakness in the economy, although it does acknowledge -- the Federal Open Market Committee acknowledged that there are signs of growth, albeit slow growth.

The move was almost dictated by long-term rates, which have been under some pressure higher here; the Fed trying obviously to hold those rates in line. It's largely a symbolic move and it is not something that most investors certainly should even consider -- concern themselves with in terms of their investment strategies or expecting any short-term boost as a result of it.

WOODRUFF: Does it say anything, Lou -- we've been reading a good bit lately about concern at the Fed about deflation. Does it say anything about greater concern in that arena?

DOBBS: Right. Well, the Fed made a point of saying that, while it's a minor possibility that the risk of deflation right now outweigh risk of inflation, no surprise there. Inflation, the core rate of inflation has been running at 1.6 percent over the course of the past six months. That's actually the lowest core rate of inflation in 37 years.

But by moving the discount, the Fed funds rate down to a target of one percent, the Fed is basically putting some pressure on the prime rate, which is the benchmark rate for small business, some consumer loans and certainly home equity loans in this country to move even lower. But, again, with rates this low, the impact on this economy is going to be certainly minor and only at the farthest realm of the margin.

WOODRUFF: So is anybody out there, Lou, significantly effected by this? DOBBS: Only to the extent -- home equity loans, as I said, some consumer loans, they will have an impact. It will have no effect on credit card rates or mortgage rates, which are set by the bond market. Typically, the 10 and 30-year bond and the 10-year note. So this will have no impact there.

We will continue to see a housing boom and refinancing boom, and it won't have anything to do with this. But the Fed is caught in a situation with which it has to take note of the risk of a growth pattern here that it says is not clearly sustainable. But, again, the margin and the impact it has on you, me, consumers, our viewers, it's negligible, if present at all.

WOODRUFF: All right. Lou Dobbs, we heard it from you. And having said all that, we still have to report on it and talk about it.

DOBBS: Absolutely, Judy. Thank you.

WOODRUFF: Good to see you, Lou. Thanks very much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired June 25, 2003 - 15:01   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: We begin with a question. How low can they go? The Federal Reserve cut interest rates again, today trimming a key short-term rate by one quarter of a percentage point to its lowest level in 45 years. This is the Fed's latest attempt to stimulate the economy by encouraging consumer spending and business investment.
We'll go to the New York Stock Exchange shortly to see how the markets are reacting, but first, what does the Fed decision mean for you? My colleague, Lou Dobbs, joins us from New York. Lou, thank you for being here. What does this mean in terms of what the Fed thinks about where the economy is going?

LOU DOBBS, HOST, "MONEYLINE": Judy, good to be with you. What it means on an 11 to 1 vote is that the Fed right now thinks there's a greater risk of weakness in the economy, although it does acknowledge -- the Federal Open Market Committee acknowledged that there are signs of growth, albeit slow growth.

The move was almost dictated by long-term rates, which have been under some pressure higher here; the Fed trying obviously to hold those rates in line. It's largely a symbolic move and it is not something that most investors certainly should even consider -- concern themselves with in terms of their investment strategies or expecting any short-term boost as a result of it.

WOODRUFF: Does it say anything, Lou -- we've been reading a good bit lately about concern at the Fed about deflation. Does it say anything about greater concern in that arena?

DOBBS: Right. Well, the Fed made a point of saying that, while it's a minor possibility that the risk of deflation right now outweigh risk of inflation, no surprise there. Inflation, the core rate of inflation has been running at 1.6 percent over the course of the past six months. That's actually the lowest core rate of inflation in 37 years.

But by moving the discount, the Fed funds rate down to a target of one percent, the Fed is basically putting some pressure on the prime rate, which is the benchmark rate for small business, some consumer loans and certainly home equity loans in this country to move even lower. But, again, with rates this low, the impact on this economy is going to be certainly minor and only at the farthest realm of the margin.

WOODRUFF: So is anybody out there, Lou, significantly effected by this? DOBBS: Only to the extent -- home equity loans, as I said, some consumer loans, they will have an impact. It will have no effect on credit card rates or mortgage rates, which are set by the bond market. Typically, the 10 and 30-year bond and the 10-year note. So this will have no impact there.

We will continue to see a housing boom and refinancing boom, and it won't have anything to do with this. But the Fed is caught in a situation with which it has to take note of the risk of a growth pattern here that it says is not clearly sustainable. But, again, the margin and the impact it has on you, me, consumers, our viewers, it's negligible, if present at all.

WOODRUFF: All right. Lou Dobbs, we heard it from you. And having said all that, we still have to report on it and talk about it.

DOBBS: Absolutely, Judy. Thank you.

WOODRUFF: Good to see you, Lou. Thanks very much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com