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Fed Letter Day

Central bank cuts interest rate again as 'R' word begins to swirl

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Confirming yesterday's rumors, The Federal Reserve cut its benchmark interest rate by another half-percentage point, to 5.5 percent. The second such cut in one month makes it clear that the Fed is more-than-a-little concerned about the growing possibility of a recession.

In announcing the reduction, Fed spokesmen cited deteriorating conditions across the economy spurring “a rapid and forceful response of monetary policy to breathe new life into the decade-long expansion.” In fact, while offering some reassuring words about the economy's prospects over the long run, the Fed also signaled that it would probably cut rates further in coming months, saying that “the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”

Accompanying this news was related news that the growth of the Gross Domestic Product (GDP), one of the indices that tracks the health of the economy, during the fourth quarter of 2000 was the lowest quarterly gain in five years. The Commerce Department depicted the 1.4 percent rate of growth for the $10.1trillion U.S. economy during the quarter as “verging on a slowdown or a recession.” Two leading reports in the past couple of weeks have measured plummeting consumer confidence in the economy, which almost always shows up as a hit on retail sales.

“Alan Greenspan was blamed for one Bush recession,” said Diane Swonk, chief economist at Bank One. “He doesn't want to be blamed for another.”

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