Benchmark Lending

Citing Slower Economy, Fed Lowers Benchmark Lending Target to 4.5% : Surprise Cut In U.S. Rate Electrifies Wall Street

By Mitchell Martin International Herald Tribune

Thursday, April 19, 2001


U.S. central bankers unexpectedly cut interest rates Wednesday, seeking to encourage investment and consumption in the face of an economy whose growth they described as "unexpectedly weak."
.
Market reaction was ebullient after the Federal Reserve Board said it would reduce its target on overnight loans among commercial banks to 4.5 percent from 5 percent. The Dow Jones industrial average gained more than 4 percent in early trading, while the Nasdaq composite index was up more than 9 percent.
.
The timing of the cut was more a surprise than the action itself, which was expected to take place May 15, the next regular meeting of the Federal Open Market Committee.
.
The Fed's statement did not indicate whether a further rate cut could be expected at that time, though many private forecasters have said the central bank is likely to reduce the target on federal funds, as the overnight rate is known, to 4 percent by the end of the summer.
.
With the move Wednesday, the Fed has cut its key rate target four times this year, dropping it from 6.5 percent to counteract signs of a weakening economy.
.
Before the Fed announcement, the private Conference Board said its index of leading economic indicators fell 0.3 percent in March, following a 0.2 percent decline in February. (Page 11)
.
The largest contribution to the fall in the leading indicators was the stock market, the Conference Board said. Yet on Wednesday, Wall Street was rising smartly ahead of the Fed's move, reacting to positive interpretations of earnings announcement from Intel and Texas Instruments. Although both had sharply lower first-quarter earnings than the year before, they beat investors' diminished expectations, and comments from Intel encouraged investors around the world.
.
In Japan, for example, the Nikkei 225 index rose 4.4 percent and in Hong Kong, the Hang Seng was up 2.9 percent, with trading ending well before the Fed announcement. European indexes were also higher, helped late in the day by the Fed's move, with gains of roughly 2 percent to 4 percent.
.
When the Fed was raising rates in 1999 and 2000, its chairman, Alan Greenspan, said he was trying to cool economic growth that was leading to a dearth of available workers and to an unsustainable and growing trade gap.
.
Both imbalances are easing. Unemployment bottomed out at 3.9 percent in autumn 2000 and now stands at 4.3 percent, while the February trade report, released before the Fed's action Wednesday, showed an unexpected decline in the merchandise deficit, to $27.0 billion from $33.3 billion in January U.S. central bankers unexpectedly cut interest rates Wednesday, seeking to encourage investment and consumption in the face of an economy whose growth they described as "unexpectedly weak."
.
Market reaction was ebullient after the Federal Reserve Board said it would reduce its target on overnight loans among commercial banks to 4.5 percent from 5 percent. The Dow Jones industrial average gained more than 4 percent in early trading, while the Nasdaq composite index was up more than 9 percent.
.
The timing of the cut was more a surprise than the action itself, which was expected to take place May 15, the next regular meeting of the Federal Open Market Committee.
.
The Fed's statement did not indicate whether a further rate cut could be expected at that time, though many private forecasters have said the central bank is likely to reduce the target on federal funds, as the overnight rate is known, to 4 percent by the end of the summer.
.
With the move Wednesday, the Fed has cut its key rate target four times this year, dropping it from 6.5 percent to counteract signs of a weakening economy.
.
Before the Fed announcement, the private Conference Board said its index of leading economic indicators fell 0.3 percent in March, following a 0.2 percent decline in February. (Page 11)
.
The largest contribution to the fall in the leading indicators was the stock market, the Conference Board said. Yet on Wednesday, Wall Street was rising smartly ahead of the Fed's move, reacting to positive interpretations of earnings announcement from Intel and Texas Instruments. Although both had sharply lower first-quarter earnings than the year before, they beat investors' diminished expectations, and comments from Intel encouraged investors around the world.
.
In Japan, for example, the Nikkei 225 index rose 4.4 percent and in Hong Kong, the Hang Seng was up 2.9 percent, with trading ending well before the Fed announcement. European indexes were also higher, helped late in the day by the Fed's move, with gains of roughly 2 percent to 4 percent.
.
When the Fed was raising rates in 1999 and 2000, its chairman, Alan Greenspan, said he was trying to cool economic growth that was leading to a dearth of available workers and to an unsustainable and growing trade gap.
.
Both imbalances are easing. Unemployment bottomed out at 3.9 percent in autumn 2000 and now stands at 4.3 percent, while the February trade report, released before the Fed's action Wednesday, showed an unexpected decline in the merchandise deficit, to $27.0 billion from $33.3 billion in January U.S. central bankers unexpectedly cut interest rates Wednesday, seeking to encourage investment and consumption in the face of an economy whose growth they described as "unexpectedly weak."
.
Market reaction was ebullient after the Federal Reserve Board said it would reduce its target on overnight loans among commercial banks to 4.5 percent from 5 percent. The Dow Jones industrial average gained more than 4 percent in early trading, while the Nasdaq composite index was up more than 9 percent.
.
The timing of the cut was more a surprise than the action itself, which was expected to take place May 15, the next regular meeting of the Federal Open Market Committee.
.
The Fed's statement did not indicate whether a further rate cut could be expected at that time, though many private forecasters have said the central bank is likely to reduce the target on federal funds, as the overnight rate is known, to 4 percent by the end of the summer.
.
With the move Wednesday, the Fed has cut its key rate target four times this year, dropping it from 6.5 percent to counteract signs of a weakening economy.
.
Before the Fed announcement, the private Conference Board said its index of leading economic indicators fell 0.3 percent in March, following a 0.2 percent decline in February. (Page 11)
.
The largest contribution to the fall in the leading indicators was the stock market, the Conference Board said. Yet on Wednesday, Wall Street was rising smartly ahead of the Fed's move, reacting to positive interpretations of earnings announcement from Intel and Texas Instruments. Although both had sharply lower first-quarter earnings than the year before, they beat investors' diminished expectations, and comments from Intel encouraged investors around the world.
.
In Japan, for example, the Nikkei 225 index rose 4.4 percent and in Hong Kong, the Hang Seng was up 2.9 percent, with trading ending well before the Fed announcement. European indexes were also higher, helped late in the day by the Fed's move, with gains of roughly 2 percent to 4 percent.
.
When the Fed was raising rates in 1999 and 2000, its chairman, Alan Greenspan, said he was trying to cool economic growth that was leading to a dearth of available workers and to an unsustainable and growing trade gap.
.
Both imbalances are easing. Unemployment bottomed out at 3.9 percent in autumn 2000 and now stands at 4.3 percent, while the February trade report, released before the Fed's action Wednesday, showed an unexpected decline in the merchandise deficit, to $27.0 billion from $33.3 billion in January U.S. central bankers unexpectedly cut interest rates Wednesday, seeking to encourage investment and consumption in the face of an economy whose growth they described as "unexpectedly weak."
.
Market reaction was ebullient after the Federal Reserve Board said it would reduce its target on overnight loans among commercial banks to 4.5 percent from 5 percent. The Dow Jones industrial average gained more than 4 percent in early trading, while the Nasdaq composite index was up more than 9 percent.
.
The timing of the cut was more a surprise than the action itself, which was expected to take place May 15, the next regular meeting of the Federal Open Market Committee.
.
The Fed's statement did not indicate whether a further rate cut could be expected at that time, though many private forecasters have said the central bank is likely to reduce the target on federal funds, as the overnight rate is known, to 4 percent by the end of the summer.
.
With the move Wednesday, the Fed has cut its key rate target four times this year, dropping it from 6.5 percent to counteract signs of a weakening economy.
.
Before the Fed announcement, the private Conference Board said its index of leading economic indicators fell 0.3 percent in March, following a 0.2 percent decline in February. (Page 11)
.
The largest contribution to the fall in the leading indicators was the stock market, the Conference Board said. Yet on Wednesday, Wall Street was rising smartly ahead of the Fed's move, reacting to positive interpretations of earnings announcement from Intel and Texas Instruments. Although both had sharply lower first-quarter earnings than the year before, they beat investors' diminished expectations, and comments from Intel encouraged investors around the world.
.
In Japan, for example, the Nikkei 225 index rose 4.4 percent and in Hong Kong, the Hang Seng was up 2.9 percent, with trading ending well before the Fed announcement. European indexes were also higher, helped late in the day by the Fed's move, with gains of roughly 2 percent to 4 percent.
.
When the Fed was raising rates in 1999 and 2000, its chairman, Alan Greenspan, said he was trying to cool economic growth that was leading to a dearth of available workers and to an unsustainable and growing trade gap.
.
Both imbalances are easing. Unemployment bottomed out at 3.9 percent in autumn 2000 and now stands at 4.3 percent, while the February trade report, released before the Fed's action Wednesday, showed an unexpected decline in the merchandise deficit, to $27.0 billion from $33.3 billion in January