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American Morning

Fed Likely to Announce Fifth Interest Rate Cut

Aired May 15, 2001 - 10:01   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.
DARYN KAGAN, CNN ANCHOR: We're going to go ahead and top this hour with the bottom line on your money. In about four hours from now, the Federal Reserve will walk out of its meeting and weigh into your finances -- a safe bet that the Fed will announce a fifth cut in interest rates this year. But just like a puddle the size of a drop may determine the amount of the ripple.

Our financial news reporter Tim O'Brien joining us from Washington -- Tim, good morning.

TIM O'BRIEN, CNN CORRESPONDENT: Good morning, Daryn.

Federal Reserve Chairman Alan Greenspan arrived here just about two hours ago and the guessing game began. Will there be a rate cut? Will it be a fourth of one percentage point, a half a percentage point, three quarters of a percentage point? Most analysts seem to think it will probably be around half a percentage point, but the Fed is given to surprises. Last month when no meeting was even scheduled, Greenspan made a conference call at 8:30 in the morning and later that day a surprise half a percentage point drop was announced.

Every bit as important as what the Fed does is what it says to justify what it does. If the Fed finds that fears of a recession are perhaps greater than necessary and that corporate profits are better than we thought, it may find -- that would be great news but it then may find that only a quarter percent cut is justified.

KAGAN: And, of course, with the way this works we might find out today, we will find out today what the Fed decides, but it will take some time to find out what the effect will be exactly on the economy, Tim.

O'BRIEN: Well, that's correct. We expect to find out in about four hours and any move that the Fed makes will have a ripple effect. It may take as much as a year for it really to filter down into the economy. But it could affect consumers rather quickly for if the Fed were to drop rates, we're talking about the interest rate that banks pay to borrow money, that usually is followed quite quickly by a corresponding decrease in what you and I pay as consumers to borrow money, be it for student loans, credit card purchases, car loans and home equity loans.

KAGAN: Very good, Tim O'Brien, Washington. Tim, I also would like to take this opportunity to welcome you to our team here at CNN. You're a great edition.

O'BRIEN: Thank you, Daryn.

KAGAN: Good to you on.

O'BRIEN: Delighted to be here.

KAGAN: Very good.

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