Fed chief now says recession near end

By Dan Nakaso
Advertiser Staff Writer

Federal Reserve Chairman Alan Greenspan told Congress yesterday that he saw encouraging signs that the country's first recession in a decade could soon end and admitted he had made a mistake in sounding too pessimistic two weeks ago.

His comments suggest the Federal Reserve will hold firm when it meets next week after cutting rates 11 times last year, analysts said. Holding the line on interest rates should be good news for Hawai'i retirees who have lost money in certificates of deposit or money market funds.

The Fed's benchmark overnight bank-lending rate is already at a 40-year low of 1.75 percent and a 6-month certificate of deposit at First Hawaiian Bank earns 1.50 percent interest. The drop in interest rates has sometimes resulted in a 40 to 60 percent decline in income for investors on fixed incomes, said Geal Talbert, investment representative for Edward Jones.

"That's what happens when you go from a 6 percent rate to a 2 percent rate," she said.

Counselors such as Talbert and David Nako, also of Edward Jones, suggest that their clients diversify their portfolios or "ladder" their CDs by buying them with different maturity dates to provide a constant stream of cash.

"You have to really sit down with the individual and educate them and make them understand how these things work," Nako said. "Other times, they may have to take a little more risk."

But elderly people in Hawai'i lean toward the conservative side and are reluctant to move their money into investments that hold the promise of higher returns but also of greater failure, said Clifford Tobita of Raymond James Financial Services.

"You used to be able to get into a money market or one-year CD and get 5 to 6 percent interest," Tobita said. "Now it's down to 2.5 or 2.7 percent. That's a pretty large drop. For some people that's a potential 66 percent drop in income. "

The Associated Press contributed to this report.