The Federal Reserve Makes The 7th Interest Rate Cut
Wednesday, April 30, 2008SUSIE GHARIB: The Federal Reserve today cut interest rates for the seventh time since September. The central bank lowered its key Federal funds rate by a quarter percentage point to 2 percent. That’s the lowest level since December 2004. The vote was 8-to-2. The Fed bank presidents of Dallas and Philadelphia voted to hold interest rates steady. As Erika Miller reports, most economists now believe the Fed is done lowering rates.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street hopes today's rate cut will be lucky number seven, the last one needed to shore up the economy and investor confidence. Doug Roberts, the chief investment strategist at Channel Capital Research, says policy makers also made the move to avoid disappointing the stock market.
DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL RESEARCH: The market was expecting 25 basis points. If they didn’t get that, they stood the danger that the market would react negatively. In the current leverage situation, you get into a free fall. That could trigger a problem and then they end up having to cut anyways.
MILLER: Traders spent much of the afternoon dissecting the statement accompanying the Fed's decision. Larry Kantor, the head of research at Barclay's Capital, said the Fed made an important shift in its outlook for rates.
LARRY KANTOR, CHIEF ECONOMIST, BARCLAYS CAPITAL: The big message from the statement today is the Fed has really moved from an easing bias to neutral. They took out a key statement which said that downside risks to growth remain. They took that out.
MILLER: Goldman Sachs economist Jan Hatzius also noted that policy makers ratcheted up their concern about energy and commodity price gains.
JAN HATZIUS, CHIEF U.S. ECONOMIST, GOLDMAN SACHS: While the inflation data has been a bit more mixed recently, they are more concerned about inflation. They are somewhat concerned about expectations of higher inflation becoming imbedded.
MILLER: Economists say the Fed was careful to give itself flexibility to cut rates again down the road, saying it will quote, act as needed to promote economic growth and price stability, end quote. The Fed may have been comforted to some degree by fresh data on the economy. Today, the government's first estimate of first quarter gross domestic product showed the economy grew at an annual rate of 0.6 of a percent. That's the same reading as the prior quarter. Many Wall Street pros were fearing a contraction. Now, experts say the central bank is waiting to see the impact of fiscal and monetary stimulus and its new credit mending efforts.
HATSIUS: They recognize that they've provided a lot of stimulus and that the markets really shouldn't count on necessarily getting further rate cuts from here.
MILLER: One thing most economist agree on is that the Fed is not likely to raise interest rates this year. They say the central bank will want to see evidence the economy is back on solid footing before reversing course. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
