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Fed Chairman May Help Ensure Soft Landing for EconomyAired December 5, 2000 - 2:04 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU WATERS, CNN ANCHOR: The next president may face an unexpected problem: the economy, of all things. Try to slow a speeding train too quickly and you could wreck it -- same thing goes for the economy. Fed Chairman Alan Greenspan suggested today what could happen. If so, that may spell recession.
CNNFN's Bill Dorman joins us from New York, now, to help us decipher Chairman Greenspan's remarks.
Let the deciphering begin.
BILL DORMAN, CNN CORRESPONDENT: Well, Lou, the chairman's speech today was actually about as thorough a look at the U.S. economy as we have seen from the Fed chairman in quite some time. He looked at a number of factors, and financial markets actually liked what the Fed chairman had to say.
Stocks have been up this afternoon very strongly. There you see the Dow Jones industrial average up about 280 points -- very strong day. The Nasdaq up strongly as well. The Dow Jones had already been up some 150 points before Greenspan started talking. And as he made his way through his remarks the Dow, basically, doubled that gain.
Greenspan laid out some details of an economy that is slowing down, but gave reassurances that if the economy hits a danger zone, Fed policy makers will not hesitate to act.
(BEGIN VIDEO CLIP)
ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: In an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending.
(END VIDEO CLIP)
DORMAN: Now, financial markets are taking it -- the Fed chairman's remarks to mean that the Fed will be on standby, will be available to cut rates. Now, the Fed's policy making committee, the Open Market Committee, meets in two weeks. Markets are not expecting interest rates to come down at that point, but we are expecting, perhaps, a restatement of what the primary threat to this economy is. Up to now the Fed has been saying that it's inflation. That may change -- it may move to a more balanced view to say that it's not only inflation but also economic growth. So financial markets, again, enthusiastic about what the Fed chairman had to say today -- Lou.
WATERS: Bill, I thought the whole object of raising interest rates was to slowdown the economy. So it has slowed down, but there's a problem -- is that right?
DORMAN: That's exactly right, actually. It is, in definition of a hard landing or a soft landing -- you want the economy to slow -- you don't want it to slow too hard too fast. The is concern right now that things may slow too hard and too fast. If that happens, then the Fed would be in a position to be able to cut rates if that is needed.
Also bear in mind interest rate moves on the upside or downside take a number of months to factor into the real economy. So Greenspan and company are not just looking at the economy right now -- what the economy is likely to be six months, a year from now, as well. Tough balancing act.
WATERS: I heard someone suggest that if we don't go out and buy enough Christmas presents this year that that could be a determining factor of what lies ahead for the Fed.
DORMAN: I don't know about a determining factor, but certainly, retail sales are one of those key factors that the Fed keeps an eye on because, bear in mind, we talk a lot about stocks. We talk a lot about a lot of other business and economic news; but more than 2/3 of this economy is consumer spending. So that's a big part of it.
WATERS: Bill Dorman in New York.
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