Transcripts

The Fed Slashes Interest Rates Another Half Point

SUSIE GHARIB: Another big interest rate cut today by the Federal Reserve. The Fed slashed its key Fed funds rate by a half percentage point to 3 percent, its lowest level since June 2005. This latest move by the Fed comes just over a week after its emergency rate reduction of three quarters of a percentage point. But today's decision was not unanimous. Dallas Fed President Richard Fisher voted to hold rates steady. As Erika Miller reports, the continued threat of recession will likely mean more rate cuts ahead.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The aggressive rate cut was exactly what financial markets were hoping for. Societe Generale economist Stephen Gallagher says the bold action is needed to boost economic growth and shore up investor confidence.

STEPHEN GALLAGHER, CHIEF US ECONOMIST, SOCIETE GENERALE: I think in the end, they're very sensitive to financial market conditions and they just did not want to take any risk whatsoever in being a disappointment to the financial markets.

MILLER: The expectation for a half-point cut gained support on Wall Street this morning on news that fourth quarter economic growth was extremely weak. Gross domestic product slowed to just 0.6 percent in the fourth quarter, far less than the third quarter's reading and half what was expected. Today's decision comes just eight days after the Fed shocked financial markets with an emergency rate cut of three quarters of a percentage point. Despite the aggressive Fed action, Morgan Stanley economist David Greenlaw still believes a recession is likely.

DAVID GREENLAW, CHIEF US FIXED INCOME ECONOMIST, MORGAN STANLEY: The recession risk is still high, but I think that it is shrinking somewhat because of the aggressive policy action on the part of the Fed and the looming fiscal stimulus that's out there.

MILLER: In the statement accompanying its decision, the Fed explained, quote, downside risks to growth remain. The committee will continue to assess the effects of financial and other developments and economic prospects and will act in a timely manner as needed to address those risks. Economists say the message from policymakers is clear: more rate reductions are likely. Some economists think it is possible the Fed might even cut rates before its March meeting.

GALLAGHER: I would say it's very likely we'll see another cut, maybe even before March 18. They moved out of the meeting schedule last week, so we can't rule it out. March 18 seems a long ways away.

MILLER: Many Fed watchers think the central bank will keep cutting rates until there's solid evidence the economy is regaining its footing and financial markets have stabilized. Even optimists don't think that will happen until at least mid-year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.