Fed Cuts Interest Rates Again
April 18, 2001
The fourth half-percent interest rate cut this year came today in a surprise action by the Federal Reserve Board.
Usually the Board acts only during the every six-to-seven-week Open Market Committee meetings. Today's cut promises to speed up consumer and business purchases -- and then production and freight.
Typically, the impact of a change in credit costs begins immediately but does not reach full impact for about nine months.
In addition, the monthly payment for a four-year truck loan has now dropped 7 to 10 percent from the beginning of the year. Each cut qualifies more small fleets and owner-operators to trade up or expand.
The fed never discloses its deliberations and motives, but the best inference is that they were moved to action by recent reports on inflation and manufacturing production. Both the consumer (CPI) and producer (PPI) price indexes released in the last few days for March showed that the inflation pace had subsided to the zero to 1 percent range now that energy prices have stabilized. This permits the fed to stimulate the economy by lowering credit costs without fear of reigniting inflation.
Factory production rose 0.3% in March after a six-month decline. But the gain was almost entirely in motor vehicles and high tech. Both industries increased production after sharp cutbacks earlier in the year to absorb excess inventories. All other manufacturing was steady or slightly down in March, continuing declines as long as nine months in some markets. Apparently, the fed was concerned that stagnant production levels could fall further without additional credit stimulus.