It will take more than interest rate cuts to reinvigorate the stock market, but the Federal Reserve's half-point cut on Wednesday underscores the close links between stock-market uncertainty and the overall health of the US economy. The positive action, greeted by a market rally, continues to signal the Fed's commitment to fend off a deep recession.
The Washington Post
With its surprise rate cut yesterday, the Federal Reserve Board implicitly acknowledged that the collapse in corporate investment and rising unemployment could leave the US economy stuck in neutral for the next year, or even tip it into recession. While much of the debate among economists in recent months has centered on the question of whether all this will translate into an official recession, David Wyss of Standard & Poor's Corp thinks that has largely become a semantic exercise. Whether the finally tally shows the economy shrank or grew by 1 per cent, he said, is probably less significant than the fact there is no quick rebound in store. (Steven Pearlstein)
For stock investors conditioned to bear-market gloom, a few bright beams of light finally seem to be breaking the clouds. Two glared through on Wednesday. The Fed cut interest rates another half- point, welcome fuel for a sputtering economy. Then Wall Street responded with a nearly 400- point gain on the Dow. In just 12 trading days this April, the industrial average has climbed nearly 9 per cent, powered by four days of triple- digit gains. Even the beleaguered tech-heavy Nasdaq is up 24 per cent since early April. Other decent economic news has shined through recently as well. What's less clear is whether this news is meaningful or, more deeply, whether a rapid market spike would be a good thing. The urgency of the Fed's unscheduled rate cut suggests that the nation's best-informed monitors of the economy are still deeply concerned. The Fed normally makes interest-rate decisions at its Open Market Committee meetings. The next one is just a month away, but that was too long to wait given what Fed Chairman Alan Greenspan sees happening today. Also worrisome is the aggressiveness of the Fed's cuts since January. In less than four months, Greenspan chopped rates by two full percentage points. For investors, there's little guidance in all this. One of the few things Wall Street agrees on is that market timing is a hopeless proposition. Instead, what investors need - and what the country could use as - is a return to realistic expectations. …