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American Morning

America Recovers: Federal Reserve Considering Yet Another Cut in Interest Rates

Aired October 02, 2001 - 11:03   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: The Federal Reserve considering yet another cut in interest rates today to kickstart the U.S. economy. If the banker's announce a cut this afternoon, and it's expected they will, it will be the ninth reduction so far this year.

CNN's Tim O'Brien in Washington watching the Fed and its move thus far today.

Tim, good morning.

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

We are expecting a rate cut. No one thinks that this one, eve in combination with the eight previous cuts, will be enough to turn the economy around. The best hope is with an economic stimulus package, which is likely to feature more government spending and some new tax cuts. The details have yet to be worked out. But both parties in Congress and the White House all seem to be working together with unusual unity and cohesion. The president talked about the package this morning at the White House.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It is big enough to get the economy moving in the short run, but small enough, so it doesn't effect long-term interest rates, for example. All of us are listening to the voices of leading economists. We're all open for suggestions. The best way to stimulate demand is to give people some money, so they can spend it.

(END VIDEO CLIP)

O'BRIEN: One of those leading economists, Alan Greenspan, chairman of the Federal Reserve, has been urging Congress to move cautiously with an economic stimulus package. But the Fed itself has been moving quite aggressively to stimulate the economy. Today's rate cut widely expected to be a half a percent, bringing the Fed's funding rate down to 2 1/2 percent, the lowest its been since 1962.

It's also the second rate cut in the last two weeks. You will also recall the Fed cut rates half a point on September 17th, just before the stock markets reopened. The terrorism is playing a large part in this, not only triggering rate cuts, but also the motivation behind the cuts. This rate cut today will be aimed at restoring consumer confidence, which took a serious hit following the September 11th attacks. Until then, consumer spending had been the mainstay of the economy. Should it continue to go downhill, the economy would surely follow, and, Bill, that could lead to a serious recession.

HEMMER: Tim, let's flesh out this conflicting message just a bit more. If the Fed did not act today, they may be viewed as a Fed that sits on the sidelines. At the same time, though, as you mentioned, you've had eight rate cuts thus far this year in the year 2001.

How do you get a measure of what they should do at this time as opposed to what they should not do, given the previous rate cuts, and trying to see if, again, they work into the U.S. economy to make things right?

O'BRIEN: This rate cut in and of itself isn't going to do that much. And in fact, even the previous eight haven't done that much, but the Fed has to be seen as doing something. You're looking for a psychological impact here. The rate we're talking about is the rate that banks charge one another for their overnight loans, and the question that raises, lowering that rate, how does that help the consumer? Well, it will. Banks passed those lower rates on to businesses and consumers, with Lower rates for car loans, home equity loans, credit card loans. It's not always automatic. It doesn't hurt to check with your bank from time to time to see if you can get a better rate.

Slowly but surely, it does have an impact, however. And very important that the Fed has to be seen to be doing something, and certainly Congress and the White House want to be seen to be doing something as well.

HEMMER: And you put your finger on it, psychological indeed.

Tim O'Brien in Washington, thank you, Tim. We'll check back in with you later today.

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