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American Morning

Federal Reserve in Meeting to Discuss Cutting Interest Rates

Aired June 27, 2001 - 10:16   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: About four hours from now, Wall Street will pause, hold its collective breath and then wait for the Federal Reserve to announce its latest action. The Fed is expected to cut interest rates for the sixth time in six months.

Let's get more now on this from CNN's Tim O'Brien who's checking in from Washington - Tim.

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

The meeting is now a little more than an hour old, and we expect the division on the committee just as there is division in the community. Most economists, most Fed watchers are predicting a cut of one half a percentage point to one-quarter a percentage point. I spoke with three economists earlier in the week, prominent Fed watchers all, two of them said half a percentage point, one said a quarter a percentage point. Interestingly to me, all three said if they were on the Fed, they wouldn't cut rates at all, that it could be inflationary, that we are seeing the effects of the earlier cuts take hold, that there could be some evidence of that at least arguably yesterday. Factory order for durable goods up, the consumer confidence up the highest it's been all year, new home sales up, existing home sales up, all of those factors could lead to a quarter percentage point cut.

On the other hand, inflation appears to be in check. The R word is still out there. Recession is a real threat and economic earnings warnings abound. Those factors militate in favor of a half a percentage point cut.

As you say, we'll know in about four hours.

HARRIS: Well, Tim, we had an economist join us last hour to talk briefly about this, but I want to know about the folks you've been talking to, is there a consensus about just how soon the economy might actually feel the impact of another rate cut right now?

O'BRIEN: Well, ordinarily it takes about six months and these rate cuts started six months ago - the early part of January. So we might now be feeling the initial impact from those early rate cuts in January and February and on. A rate cut today, could be inflationary, if, in fact, these other rate cuts are taking hold.

(AUDIO GAP) HARRIS: Tim O'Brien checking in with us from Washington, good to talk to you. We'll see you later on.

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