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American Morning

Economists Predict Another Rate Cut

Aired May 15, 2001 - 09:04   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.
LEON HARRIS, CNN ANCHOR: Now to the economy and interest rates. Federal Reserve policy makers are meeting today, and economists are predicting that Fed Chairman Alan Greenspan and company will cut interest rates for the fifth time this year.

For the latest on that, let's check in now with CNN's Deborah Marchini. She's at the Financial News Desk in New York -- good morning, Deb.

DEBORAH MARCHINI, CNN ANCHOR: Good morning, Leon. Good to see you.

Well, that's, indeed, correct. The expectation is that the Federal Reserve will move for the fifth time this year to cut interest rates by one-half percentage point.

Perhaps of more interest to the markets is what the Fed says in the statement announcing any rate cut. Up until now, the Federal Reserve has said in each of its rate cuts that the conditions in the economy were weighted more toward a slowdown, the risks were weighted toward a slowdown.

If the Fed changes that stance in any way, it could lead investors to believe this may be the last rate cut for a while -- Leon.

HARRIS: If memory serves me correctly, the last cut that we saw didn't really have that much of an impact on consumers. What about this time around?

MARCHINI: Again, the impact is likely to be muted, and it depends on exactly who are you.

For example, if you're about to buy a home and you're looking at an adjustable-rate mortgage, well, when short-term interest rates come down, a new adjustable-rate mortgage rate will come down as well. The introductory rate will come down as well.

The other big winners here are people with home-equity homes. They're tied to the prime lending rate, and when the Fed moves, typically, banks lower their prime lending rate. Automatically, home- equity loan credits go down.

But if you've got credit-card debt or an existing fixed-rate mortgage, you don't necessarily see any relief as a result of this.

HARRIS: All right. So if that's the case, then is this the last cut we should expect to see for some time, or should folks just sit tight and wait for another one to come down the road?

MARCHINI: Leon, that is the million-dollar question, and we don't know the answer. We will have better idea, though, I guess about 2:15 p.m. Eastern Time when the Federal Reserve releases that statement.

The key phrase that's in there, the one to look for, is the one that says the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future. That is Fed speak toward -- we're learning toward cutting interest rates some more if we think we have to. If they say anything different from that, watch out.

HARRIS: OK. Good deal. Thanks for the warning. Deb Marchini. And thanks much for sticking around a little later for us this morning. We'll see you later on.

Well, the interest-rate cuts and the slowing economy can effect your financial future. A financial planner is going to join us in just a few minutes to talk about that and give you some tips. So he'll be taking your e-mail questions for that. Send them into us now. The address you see up there on the screen is morning@cnn.com.

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