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American Morning

America Recovers: Federal Reserve Expected to Make Interest Rate Cut

Aired October 02, 2001 - 09:11   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: And the panel that sets short-term interest rates, the Federal Open Market Committee is meeting this morning.

Let's go no to CNN Financial News Correspondent Tim O'Brien at the Federal Reserve in Washington for a preview. Good morning, Tim.

TIM O'BRIEN, CNN FINANCIAL NEWS CORRESPONDENT: Good morning, Paula. We are expecting a half a point rate cut. That's not certain, some analysts say might only be a quarter of a percentage point but the widespread expectation is a half point, that would be extraordinary, the ninth rate cut so far this year would bring the fed funding rate down to 2 1/2 percent. That would be the lowest it's been since 1962. Also, significantly it would be the second half point cut in the last two weeks. You may recall, just before the markets opened on September 17th, the fed then cut, interest rates, a half a percentage point.

There is no question, that the terrorism is playing a large part in all of this both symbolically and as a practical matter. Symbolically, we did not get that familiar walk from Alan Greenspan going into the fed this morning instead, he drove in. The fed wouldn't say why, but, quite obviously, that is a security precaution.

As a practical matter the motivation behind the rate cuts is also changing, where before it was motivated -- the idea to stimulate business spending, this time it's more to restore consumer confidence. We've been in midst of a downturn in the economy for sometime and the culprit has been declining corporate earnings and companies who don't make money. Instead of investing in factories and new equipment, which is good for the economy, layoff workers, which is bad for the economy.

Consumer spending, the mainstay of economy, that's been very good up until now. we have studies showing that consumer confidence is fading, consumer spending is on the way down if that continues, we could be in the beginning of a very serious recession. That's the motivation. We think it will be half a percentage point.

ZAHN: So Tim when do you actually get your hands on that statement that often accompanies the rate cuts that will give indication what the fed's next move might be? O'BRIEN: Yeah, that's going to be 2:15 this afternoon, Eastern time, and the statement will be very important. We'll want to see just what went into this decision; why it is a half percentage point or possibly a quarter of a percentage point; and we also expect the governors may say something about the impact of the recent terrorism and perhaps give some clues as to what's down the road. The fed will be meeting again in November, and December, and not only are we expecting a half point now but perhaps another half point by the end of the year, which could bring the interest rate down to a remarkable 2 percent. The fed would be all but giving money away. Paula?

ZAHN: Wow! thanks Tim, we will look forward to your live reports when the fed makes its formal announcement.

Still to come the president meets with Congressional leaders.

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