The Federal Reserve probably decided Tuesday behind closed doors to sanction its ninth cut in interest rates in less than a year, but analysts still wonder if it has the will or the way to resuscitate the floundering economy.
The cut--which many economists don’t expect to be revealed until the end of next week--would bring the Fed’s key discount rate down to its lowest level since early 1973. But the steep rate fall has so far had only a limited impact on the economy. And analysts said any reduction over the next two weeks will do little to put more money into the pockets of credit-conscious consumers for the crucial Christmas shopping season.
“It’s too late to save Christmas,” said David Wyss, chief financial economist at DRI/McGraw Hill economic consultants.
That’s because it usually takes about six months for changes in interest rates to affect consumer and corporate spending patterns and thus the overall economy.
Economists said the Fed’s policy-making Open Market Committee probably decided behind closed doors Tuesday to give central bank Chairman Alan Greenspan leeway to cut the funds rate another 1/4 point, to 4.75%.
But they don’t expect Greenspan to act until after the release next week of consumer and producer price data for October. The cut in the funds rate will probably be accompanied by a half-point reduction in the discount rate, the rate the Federal Reserve charges on loans to banks.