Fed likely to cut key rate again today

Associated Press

WASHINGTON — The Federal Reserve is expected to cut a key interest rate today for the ninth time this year, bringing it to the lowest level in nearly four decades.

The big question is whether Fed rate cuts, normally a powerful force to boost consumer spending, will be enough to overcome the unprecedented situation the central bank now faces — a nation gripped by fears of further terrorist attacks.

Before Sept. 11, the Fed had cut interest rates seven times in its most aggressive credit easing in nearly two decades as it tried to keep the economy out of a full-blown recession.

Most analysts had believed this campaign would succeed with the economy, which slowed to a barely discernible 0.3 percent growth rate from April through June, posting a solid rebound in the second half of this year.

But now with the extensive economic damage from the Sept. 11 attacks — from rising layoffs in the airline and tourist industries to rising consumer unease — many analysts believe the country is now in a recession which will probably last until the spring of next year.

David Wyss, chief economist at Standard & Poor's in New York, said he looked for the Fed to cut its target for the federal funds rate, the interest that banks charge on overnight loans, by a half-point to 2.5 percent today, the lowest level for this key interest rate since 1962. Wyss predicted another quarter point reduction at the Fed's next meeting in November with further cuts possible.

Although all this credit easing should be enough to revive the economy in the early part of 2002, Wyss said there is an unusual amount of uncertainty surrounding the economy at present.

"A lot will depend on how the war will play out and whether there will be more terrorist attacks," Wyss said. "We just don't know."

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