Economists See Another Fed Rate Cut
As the U.S. economy continues to falter, the nation’s central bank is pondering whether to cut interest rates once again to revive economic activity.
Economists are generally persuaded that the Federal Open Market Committee, the policy making arm of the Federal Reserve Board, will decide a rate cut is necessary when it meets Tuesday. But they are uncertain how soon the Fed will act.
“I think they will cut the discount rate again, but I’m not sure whether they will do it next week or after they have a better idea on how Christmas sales are going,” said David Wyss of DRI-McGraw-Hill Inc.
For one thing, inflation--a major factor in any interest rate cut decision--appears to be pacified, although consumer prices in November rose a moderate 0.4% and were a bit higher than anticipated.
The Labor Department said last Wednesday that its producer price index, which measures wholesale prices, went up only 0.2% last month. That followed a big upward bump of 0.7% in October that briefly ignited inflation fears.
On the other hand, any Fed action now would not work its way through the system for at least six months, although there could be some psychological benefit from a rate cut.
The Fed has hardly been bashful about cutting interest rates. It has sliced the discount rate--the rate it charges banks to borrow--five times since last December to 4.5%, an 18-year low.
But critics of the Fed, including many in the Bush Administration, charge that it has not moved quickly enough in the past and that further action is still warranted.
Some analysts believe that the economy could show negative marks when fourth-quarter figures are tallied up, adding even more pressure on the Administration and Congress as the 1992 election year begins.
Treasury Secretary Nicholas Brady and White House economic adviser Michael Boskin told the Senate Finance Committee last week that economic activity is continuing to slow.
“The data available thus far for the fourth quarter suggest that growth, if any, will be slight,” said Boskin, who added that a consensus by blue chip private forecasters of a 1.3% fourth-quarter annual growth rate was too high.
President Bush, accused of turning his back on domestic affairs in favor of foreign policy considerations, has turned his attention to the economy with renewed vigor.
He has promised to outline a number of measures to stimulate the economy when he delivers next month’s State of the Union address.
Some Bush aides have said he could even unveil some measures prior to the address that, while not certain, suggests that there is concern among his inner circle that he is waiting too long while the economy atrophies.
