Fed Cuts Interest Rates Quarter Point
June 27, 2001
Today's 0.25% cut in interest rates by the Federal Reserve Board brings the six month total reduction to 2.75% and signals to consumers and investors that it is safe to keep spending,
because the fed will do whatever is necessary to prevent a recession.
The financial markets anticipated the latest cut, so market-set interest rates had already largely adjusted to the new lower federal funds rate. This includes most investment and large corporate loan rates. But consumer and small business rates will be quickly reset to be consistent with now lower federal funds rate. In fact, some expected another half-percent cut and now have to adjust to the smaller reduction.
A boost to confidence will be the most important immediate impact. The Fed's goal is to sustain consumer spending until business production and investment are stabilized and ready to increase again. Recent reports on confidence and spending strongly suggest that the game plan is working.
Carriers and truck equipment manufacturers can now be more confident in the widespread forecasts for stronger - if still subpar -- economic growth in the second half of the year. Just to be sure, the $300 per taxpayer federal tax rebates will be in the mail in a few weeks.