The Federal Reserve today cut interest rates by half a percentage point, bringing the federal funds rate to 2%. It was the 10th rate cut of the year and the third since Sept. 11. The Fed, in an accompanying statement, said it saw weakness as a main threat to the U.S. economy, signaling a willingness to cut rates again in the future.
Christoph Bianchet, chief economist at Credit Suisse Asset Management, thought the Feds move would be of little help to the economy. "Its really not important at this point in time, he said, adding that greater emphasis should be placed on bringing down long-term interest rates. Such a move would lower mortgage and consumer loan rates, increase consumer spending and boost the corporate bond market, he said.
Thomas Herndon, executive director of the $100 billion Florida State Board of Administration, Tallahassee, also thinks factors other than cutting short-term rates are more important. "Lower gas prices and a victory in the war on terrorism would help a lot. People having confidence that they could travel securely would also help, he said. "The consumer is on the sidelines thats whats missing here. The consumer has to get back on track spending before the economy will pick up.