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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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U.S. Interest Rate Cut Addresses Future, Not Current, Problems
October 7, 2002
The U.S. Federal Reserve voted unanimously Nov. 6 to reduce benchmark interest rates by half a percentage point to 1.25 percent, the lowest level since July 1961. The larger-than-expected cut took market analysts by surprise and sent U.S. stock indices into a bull rush.
With U.S. GDP growth rates already back up to 1990s averages, unemployment steady, corporate earnings recovering and global oil supplies steadily tracking upward, there appears to be little motive for cutting interest rates except to bolster still-sagging stock prices -- a concern that in the past has earned only snorts of disdain from Federal Reserve Chairman Alan Greenspan.
Instead, a host of other factors probably drove the Fed's decision.
First, the international outlook is bleak. While growth may be returning to the United States, it remains a question mark in Europe and a dead letter in Japan. The export-oriented Asian economies also are wobbling impressively amid the ongoing. This leaves the United States the sole engine of global growth. With inflation at a barely perceptible 1.5 percent, Federal Reserve officials likely felt it was safer to give the economy a swift kick and be done with the recession altogether. After all, it is very rare that the Fed has the opportunity to supercharge the economy without the threat of it overheating.
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(c) 2002 Stratfor, Inc.
Dan
U.S. Interest Rate Cut Addresses Future, Not Current, Problems . . .