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CNN Live Sunday

Is the Fed Going to Cut Interest Rates for 11th Time This Year?

Aired December 09, 2001 - 18:18   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.
CATHERINE CALLAWAY, CNN ANCHOR: Since the U.S. economy slipped into a recession earlier this year, things have been getting worse for America's work force; 331,000 people lost their jobs last month. More expected to fall victim to the economic downturn before recovery sets in.

Meanwhile, the Federal Reserve has cut interest rates 10 times this year trying to boost the U.S. economy. Ten times. Can additional cuts by the Fed help mend the economy? Joining us now from Washington to discuss the financial future is Laura Cohn. She's following the Federal Reserve for "Business Week." Thanks for being with us this afternoon.

LAURA COHN, "BUSINESS WEEK": Thank you.

CALLAWAY: So, what do you think is the Federal Reserve going to go for the record?

COHN: Yeah I think we will actually have 11 interest rate cuts from the Fed. Come Tuesday, around 2:15 Eastern time, we'll get the big news. The Fed is expected to cut interest rates for the 11th time this year in an effort to revive the economy.

CALLAWAY: Do you think it's going to work, Laura? They have done this before, obviously, since the economy really took a turn, and it hasn't seemed to do too much. What are they hoping this one is going to do?

COHN: Well, what happens is there's a lag between when the Fed actually takes an action and when it actually kicks in, so we are about -- we're almost a year since they first started cutting interest rates, so once we get into 2002 we should see the economy start to come back.

CALLAWAY: I was going to say, six months to a year a normal recession, do you think that's going to happen with this one? Things will take an up turn by then?

COHN: Yeah. I mean, there are a lot of people who are actually optimistic about the economy. There are some signs that things are getting better. Auto sales are up, for example. And actually, consumers are doing a little more shopping so far this holiday season than people had initially expected. CALLAWAY: But are we going to see things get a lot worse before they get better, as we have seen in other situations when the economy turned into, well, like this?

COHN: That is a $1 million question, of course. And we're not, you know, it depends on what the numbers show, but like I said, the important thing to keep in mind is there are some very early signs that the economy is coming back. If those signs continue, then hopefully this recession won't last very long.

CALLAWAY: Well, tell us what you mean by some early signs. Let's hear some of them.

COHN: Sure. The most important one is auto sales. Auto sales have actually risen a lot -- it's mostly of course because auto companies are offering zero percent financing.

The other thing is consumer spending. A lot of people had expected that the holiday sales, you know, after September 11 that consumers would stay in their homes and maybe not go out shopping, but actually now some people are starting to worry about the fact that retailers may not have enough inventory for all the activity that is going on.

CALLAWAY: Oh, really?

COHN: Yes, that's another big indicator that's happening. Finally, consumer confidence is starting to pick up just a wee bit, so that's giving people an impetus. And actually, the most important sign is the stock market. We saw the stock market break through 10,000 again last week, so if that continues, yet another good sign for the economy.

CALLAWAY: And you know, Laura, you have to wonder if more -- the Fed is hoping that it may have a psychological effect on people if they hear the interest rate going down again, you know, and take that plunge, make those big purchases that the retailers are certainly hoping they will make.

COHN: Yeah, you know, you bring up a really good point. The psychology of the economy is really important. So, a lot of times nowadays, with the stock market doing what it's doing, it tends to lead the news. And when people hear that, it makes them think about actually how their finance is doing, perhaps they should go out and spend more money, which, in turn, will help the economy.

CALLAWAY: You got to hope, though, that all of this may indeed help the housing costs in America, which are certainly making the situation, the economic situation, that much worse.

COHN: Yes. That's right. Before the last couple of interest rate cuts from the Fed, we did see a lot of people refinance their mortgages, perhaps looking to buy new homes. So, the housing market actually has held up pretty well in spite of the weaknesses in other areas. CALLAWAY: All right, Laura Cohn, we'll probably be back with you when we see what the Federal Reserve has done, or will do. Thanks for joining us today.

COHN: Thank you, Catherine.

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