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American Morning
Policymakers at Fed Cut Interest Rates
Aired November 07, 2002 - 07:25 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.
BILL HEMMER, CNN ANCHOR: A bit of a cheer went up yesterday on the floor of the New York Stock Exchange when word came out that the policymakers at the Fed had cut interest rates. Not only were borrowing costs lowered, they were slashed by a half percentage point, which is double what analysts had predicted.
Could the move energize the sluggish U.S. economy?
Andy Serwer minding your business this morning with more on this.
Good to see you again in person.
ANDY SERWER, "FORTUNE" MAGAZINE: Good to see you, yes, back in New York.
HEMMER: Impact on consumers here is what?
SERWER: Well, I think that obviously it's going to be a net positive that the Fed cut interest rates. What it does is it should be a boost because it lowers the costs of borrowing for businesses and consumers. That means businesses have an easier time borrowing from banks. Banks are already cutting their interest rates. That means that businesses can expand and we hope create more jobs.
Consumer loans should trend down a bit, credit cards. But you know those are always a little bit stickier because the risks to lending consumers in this economy are higher. So banks will be somewhat reluctant to cut credit card rates. But they should trend down a bit.
HEMMER: Why go half a point? Why not a quarter point?
SERWER: Well, this is what was so interesting yesterday, Bill, and why the market had such a hard time digesting the rate cut. You know, at first stocks soared on the news of the rate cut, then they plunged. You can see, look at this chart. And you can see it's the end point there, Bill, is what I'm talking about. See, it rose then they plunged then stocks ended up the day 90 points. A lot of talk amongst economists and traders as to why the half point.
And the thinking here is that the Fed and Alan Greenspan are using a shotgun approach rather than going and doing it in dribs and drabs, a quarter point here and a quarter point in December. There's Alan Greenspan right there. The Fed has decided to say boom, here's our holiday present, let's take care of this. If Iraq is hanging over the economy and making people scared to spend, this should allay those fears and what we're trying to do is help the economy get through to the end of the year and by that point we hope things will pick up again.
That's the thinking.
HEMMER: We shall see. We're running out of real estate, though, huh? We're at the lower end of interest rates.
SERWER: Yes, we're getting down there, 1.25 percent, Bill.
HEMMER: Wow.
Thank you, Andy.
SERWER: OK.
HEMMER: See you next hour.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired November 7, 2002 - 07:25 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: A bit of a cheer went up yesterday on the floor of the New York Stock Exchange when word came out that the policymakers at the Fed had cut interest rates. Not only were borrowing costs lowered, they were slashed by a half percentage point, which is double what analysts had predicted.
Could the move energize the sluggish U.S. economy?
Andy Serwer minding your business this morning with more on this.
Good to see you again in person.
ANDY SERWER, "FORTUNE" MAGAZINE: Good to see you, yes, back in New York.
HEMMER: Impact on consumers here is what?
SERWER: Well, I think that obviously it's going to be a net positive that the Fed cut interest rates. What it does is it should be a boost because it lowers the costs of borrowing for businesses and consumers. That means businesses have an easier time borrowing from banks. Banks are already cutting their interest rates. That means that businesses can expand and we hope create more jobs.
Consumer loans should trend down a bit, credit cards. But you know those are always a little bit stickier because the risks to lending consumers in this economy are higher. So banks will be somewhat reluctant to cut credit card rates. But they should trend down a bit.
HEMMER: Why go half a point? Why not a quarter point?
SERWER: Well, this is what was so interesting yesterday, Bill, and why the market had such a hard time digesting the rate cut. You know, at first stocks soared on the news of the rate cut, then they plunged. You can see, look at this chart. And you can see it's the end point there, Bill, is what I'm talking about. See, it rose then they plunged then stocks ended up the day 90 points. A lot of talk amongst economists and traders as to why the half point.
And the thinking here is that the Fed and Alan Greenspan are using a shotgun approach rather than going and doing it in dribs and drabs, a quarter point here and a quarter point in December. There's Alan Greenspan right there. The Fed has decided to say boom, here's our holiday present, let's take care of this. If Iraq is hanging over the economy and making people scared to spend, this should allay those fears and what we're trying to do is help the economy get through to the end of the year and by that point we hope things will pick up again.
That's the thinking.
HEMMER: We shall see. We're running out of real estate, though, huh? We're at the lower end of interest rates.
SERWER: Yes, we're getting down there, 1.25 percent, Bill.
HEMMER: Wow.
Thank you, Andy.
SERWER: OK.
HEMMER: See you next hour.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
