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Federal Reserve Acts Early to Reduce Interest RatesAired January 3, 2001 - 4:34 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOIE CHEN, CNN ANCHOR: In a quite unexpected move, Federal Reserve stepped in today to cut interest rates by a half percent. That move is seen as a sign that the Fed is not content to see our economy slip into recession.
Joining us now for more on this, Jeffery Rosensweig. He's an associate dean for corporate relations at the Emory University business school, the Goizueta Business School there; an expert on the global economy and apparently an expert on what was going to happen with the Fed because you told me a couple weeks ago my kid wouldn't have to go to welding school.
JEFF ROSENSWEIG, EMORY UNIVERSITY: I'm glad. Then your kid can come to Emory. Now, 15 days ago I did call this. Everyone was saying that the Fed would wait until their meeting and I said that's too late; late January. The economy is really hurting.
On the other hand, notice I'm not wearing the white shirt, the suit. Yes, I thought they'd move later this week. This is coming right out right after New Year's and getting on it, and he got on it with 50 basis points, not 25. It shows that Alan Greenspan is right on top of things.
CHEN: Yes, but usually the Fed doesn't do this just once. I mean, they usually do it in tandem, here. What's going to happen at the end of January?
ROSENSWEIG: I don't think they're going to move again at the end of January, but we'll see what kind of data comes out over the month. What it shows me, again, is that they got their finger on the pulse and I do expect a further move, maybe even two more moves.
In fact, I've studied this. If you look back over the last say, 20 years, every time the Fed starts cutting, they persist, sometimes for a year or two. As we talked about last time, they cut 20 separate times during the earlier Bush administration. I'm not looking for 20 cuts this time, especially because they already moved aggressively getting the whole 50 basis points.
But, you know, if the economy looks soft, sure they'll cut in the end of January. If not, they'll cut in February or March. The good news is if you look at some stocks that popped up, like a Home Depot, because people realized we're just beginning to cut interest rates. It will continue, and that means people will be building again and fixing up their homes and things like that.
We also have some interesting names that are up a lot today. Some of the Internet companies that are good ones came back very strong, the JDS Uniphase. Amazon had a very strong day. It's one I bought yesterday so I feel very good.
CHEN: But is it enough to fluff up the whole tech market or is this...
ROSENSWEIG: No, no and that's exactly what I was thinking yesterday. I didn't know the Fed was going to do this today, but I think a lot of these dot.coms are going broke. They're out of it. They're already out of the game. It's just a matter of turning out the lights. So, that's why I was thinking Amazon because Amazon I believe will survive and there'll be less competition.
But I've got to tell you, I've been worried about my own students because it would have been a very grim job market if we didn't do something to give this economy a bit of a boost.
Again, no dot.coms are hiring. As we talked about two weeks ago, I'm looking for a lot of lay-offs and I'm pleased that Greenspan was caring about what's going on on Main Street, about the person in the person on the street and not just about the stock market.
But did you know today alone there was a half trillion dollars of wealth added back in the stock market? A half trillion dollar means maybe some spending.
CHEN: Yes, it's not just the money. It's about the money that I could be out borrowing now. Now, is that -- what is it going to do for me and my ability to borrow?
ROSENSWEIG: One thing I want to point out to people, though, is that, you know, they have cut short-term interest rates. That's the only thing they can control, but again, we've been looking to successive cuts so the long-term interest rates, which really look out into the future, are already down dramatically. To tell you the truth, the mortgage rate looks good right now.
CHEN: And the bond cuts did that?
ROSENSWEIG: Yes, exactly. Exactly. So you can go out and get a 15- or 30-year mortgage now at an amazing rate. So, look about refinancing. If you think that the housing market is still soft in your area, depending on where you live and it's been soft in our area a little bit after a big run-up in Atlanta, think about buying that house because the rates are great now.
In other words, the longer terms rates are great now if you want to refinance or buy a house. If you had a house on the market and it wasn't selling and you were worried about are we falling into recession? Is the Fed watching this? Well, we were falling into recession. Luckily, the Fed was watching it. But as you said, it probably won't be the last cut on the short-term interest rates, but it's a heck of a good time to refinance. CHEN: Think about your money. All right, Jeff Rosensweig from Emory Business School. Thanks for being with us once again.
ROSENSWEIG: Thank you.
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