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Federal Reserve Slashes Interest Rates to Bolster Faltering Economy

Aired January 3, 2001 - 2:02 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: It's a New Year's surprise from the Federal Reserve: The powerful bankers aggressively cut interest rates today to help the stumbling economy. The Fed slashed the federal funds rate from 6.5 to 6 percent, and it trimmed the symbolic discount rate by a quarter point.

Wall Street, which has been something of a sourpuss for months now, quickly found a reason to party and the party continues.

CNNfn's Myron Kandel joins us now from the New York financial desk. Mike, this wasn't supposed to even be considered until the end of the month. So this is something of a surprise.

MYRON KANDEL, CNN FINANCIAL EDITOR: Well, that was the big surprise, Lou. The economy is slowing so much that some people were thinking the Fed might indeed cut interest rates in-between now and the -- its meeting at the end of this month. But nobody was expecting it to happen today, and very few people were expecting a cut of a half a percentage point. As you indicated, the Fed usually moves in quarter point increments.

So, the big surprise today was the timing, earlier than expected, and secondly the size of the cut, and that cut will translate into a lot of saving throughout the economy. It will make loans cheaper for individuals on such things as mortgages and cars. It will also cut the rates on credit card balances and it will help business, because business will be able to borrow more cheaply.

So the fed, obviously, acted; worried about a slowing economy. It took the action today and it even said it might do so again.

WATERS: And Mike, what about the consumer confident quotient in all of this, the psychological effect of the Federal Reserve lowering interest rates by this much?

KANDEL: Well, just to step back a bit, the Fed even said that falling consumer confidence was one of the reasons for its action today, and that obviously, alarmed the Fed because it translates into lower consumer spending and keep in mind that consumer spending accounts for two-thirds of the U.S. economy. So, the Fed wanted to give that a shot in the arm, and certainly it should have consumer confidence as we move along.

WATERS: Now, what's the bias and what's the chance of more rate cuts possibly even more this month?

KANDEL: Well, the Fed indicated that they were still concerned about the slowing economy, and that means when its policy makers meet on January 31st, they might even consider another rate cut.

We'll know more about that when we see some of the figures that will be coming out. The big one is the employment report that comes out on Friday. But I want to point out one other thing, Lou is the stock market as you indicated had a big rally. As a matter of fact the Dow was slightly in the minus column, and when the news came out, the Dow shot up more than 370 points.

Now it's come down a bit or quite a bit, 170 points, but it's still up 206 points as we speak. So, that's a major rally especially considering the losses that the stock market has suffered in recent weeks, Lou.

WATERS: All right, Myron Kandel on the job in New York.

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