Economists fear rate cut won't help
By Barbara Hagenbaugh USA TODAY
[no mention of severe overcapacity, excessive capital equipment
economists are not very sharp
they recognize even lower rates might not help
but they miss the primary reason why]
WASHINGTON (11/03/2002) — After sitting on the sidelines for nearly 11 months, Federal Reserve officials are widely expected to cut interest rates Wednesday to try to pump some life into the deteriorating U.S. economy. But the question is: Will it work?
Interest rates are at 41-year lows. Consumers have been buying homes and refinancing mortgages like crazy. Creditworthy businesses that want to borrow money can do so at rock-bottom interest rates, Credit card interest rates hit their floor more than a year ago.
What's dragging the economy down has nothing to do with interest rates. Instead, there's been a massive loss of confidence by consumers and business owners over the past few months — something the Fed has little control over.
"The issues of our economy have much more to do with terrorism, war, CEOs in handcuffs, malfeasance, dock strikes, insurance costs, energy costs, uncertainty about the election, trade protection," says Brian Wesbury, chief economist at Griffin Kubik Stephens and Thompson in Chicago.
Joel Naroff, president of Naroff Economic Advisors in Holland, Pa., says that puts the Fed — and the economy — in a "worrisome" spot. "The Fed's the only game in town, but it doesn't have anything to put on the table," he says.
The Fed's interest rate target currently is at 1.75%, the lowest since 1961.
Some private economists say a rate cut, no matter the starting point, will spark increased borrowing and spending. At the least, a cut would signal that Fed officials recognize that the economy, particularly the job market, is struggling. That could provide a psychological boost for businesses and consumers.
"At the end of the day, it's better to use (the Fed's interest rate) tool than to sort of sit back and hope for the best," says Bill Dudley, chief economist at Goldman Sachs.
Dudley and some other economists say the Fed should move decisively by cutting rates a half-percentage point instead of the quarter-percentage point cut expected by most economists. |
