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Fed
Continues With Aggressive Easing Policy
The Federal Reserve cut the Federal Fund’s Rate an additional
fifty basis-points today bringing the rate down to 2.5%, the
lowest level since 1963. The half-point cut was expected by
most economists, which makes this the ninth rate reduction
of the year. Stock Traders Press expects the Fed fund’s
rate to rest between 2% to 2.5% by calendar year-end. The
Fed also cut the seldom-used discount rate to 2% from 2.5%.
“Long-term prospects for productivity growth and the
economy remain favorable and should become evident once the
unusual forces restraining demand abate,” said the FOMC
in announcing in its latest monetary policy move. “The
Committee continues to believe that, against the background
of its long-run goals of price stability and sustainable economic
growth and of the information currently available, the risks
are weighted mainly toward conditions that may generate economic
weakness in the foreseeable future.”
The interest-rate cuts don’t move stocks like they used
to in the past. Back on Jan 3, when the Fed cut 50 basis points,
both the Dow and Nasdaq closed over 300 points higher. Investors
simply aren’t convinced that the cuts are going to drive
businesses to spend more in the near future. On the contrary,
companies are working hard to cut, rather than to grow, their
spending levels in the midst of what many believe to be a
mild recession.
Typically, the economic effect of Fed rate cuts isn’t
seen until six to nine months after they are made. Stock Traders
Press believes the rate cuts will aid in stabilizing our economy
during the first quarter of 2002. - Staff Analysts
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