Feds Cut Rates Again
August 21, 2001
The Federal Reserve Board added some insurance to its cautious outlook for an improving economy by reducing the federal funds rates by 0.25% to 3.5%, the eighth reduction this year, totaling 3.5%.
The Federal Reserve Board noted that consumer spending is still inching upwards, while business investment and exports are weakening at a distressing rate.
This move will have no noticeable impact on freight volume over the rest of this year. But previous interest rate cuts as early as January are starting to impact the economy. The strong housing and auto markets have clearly benefited from lower credit costs.
While the last several cuts may not have been necessary to support domestic consumer spending, they may have been done to permit foreign central banks to reduce credit costs to support demand for U.S. exports. Unlike the United States, which attracts capital during troubled times, other countries are reluctant to reduce credit costs for fear of capital flight and currency depreciation.
If credit costs fall a similar 0.25% in our major trading partner countries in the next few weeks, today's small rate cut will have a multiplied impact, supporting demand next spring and summer.
The fed may not have made this move if they had not seen energy costs fall sharply enough to keep overall inflation under a 2 percent annual pace.