Fleet Management

Feds Drop Interest Rate; Could be Good News for Trucking

January 03, 2001

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In a rare between-meetings decision, the Federal Reserve has cut a key interest rate by half a point trying to keep the nation out of a recession. The first decrease in rates in two years could be good news
for a trucking industry struggling with slower freight volumes as well as high fuel prices and interest rates.
The Fed is cutting its target for the federal funds rate - the interest banks charge each other on overnight loans - to 6 percent from its nine-year high of 6.5 percent.
"These actions were taken in light of further weakening of sales and production and in the context of lower consumer confidence, tight conditions in some segments of financial markets, and high energy prices sapping household and business purchasing power," the Fed said in a statement.
According to Newport economist Jim Haughey, truck loan rates will slide down a corresponding half percent. A small impact on retail sales of trucks is likely. But the big impact will be through the boost in consumer confidence and spending, which could help freight volumes pick up.
"Rate cuts never hurt the economy, and in doing so, the Fed (shows that it) believes the slowdown is real. Everyone sees it, and now the Fed realized it and acted quickly," said USFreightways Corp. Chairman and Chief Executive Samuel Skinner, a former U.S. Secretary of Transportation, in an interview with Bloomberg. "Anything that allows people to put more capital into business and increase production ... all of that is good.
"The trucking industry has several (other) issues. One is rising fuel prices. What effect this (rate cut) will have on fuel prices, I don't know. No. 2 is what they're going to do with the hours-of-service rule in the current (presidential) administration. There's a shortage of drivers in our industry. No. 3 is the new ergonomics rule out of OSHA and the Department of Labor.
"If they don't do something about those things, it's pretty clear we're not going to get the satisfaction we need to help this economy."
Bob Costello, chief economist at the American Trucking Associations, also sounded a cautiously optimistic note.
Although the trucking industry could see the benefits of the rate cut in the next few months, piled-up inventories after a lackluster holiday shopping season could still mute shipping demand for a month or two.
Costello also predicts that failures and mergers among already-weakened trucking firms will continue at last year's record pace.
"You're going to continue to see bankruptcies," he said. "Monetary policy doesn't help overnight."

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