Gloomy Data Push the Fed to Ease Rate; Greenspan Concedes Economy 'Faltering.' (Alan Greenspan)

By Holland, Kelley | American Banker, December 9, 1991 | Go to article overview

Gloomy Data Push the Fed to Ease Rate; Greenspan Concedes Economy 'Faltering.' (Alan Greenspan)


Holland, Kelley, American Banker


Gloomy Data Push the Fed To Ease Rate

The Federal Reserve eased interest rates again Friday, boosting the bond market but leaving economists and other Fed watchers skeptical that the central bank's actions would be enough to get the economy moving.

The Fed intervened in the Treasury securities market to signal its intention to cut the target rate for federal funds to 4.5%, from 4.75%. The rate is what banks charge each other for lending overnight reserves.

The move came after the government's report that nonfarm payrolls in November fell by 241,000, the biggest drop since March.

Greenspan Weighs In

Meanwhile, in a speech in Florida, Fed Chairman Alan Greenspan made one of his strongest acknowledgments to date that the economy has lost momentum, in part due to tight bank credit and borrowers' caution.

"The economic recovery, which seemed to be gathering momentum and spark during the summer, more recently has shown signs of faltering," Mr. Greenspan told the Securities Industry Association annual convention in Boca Raton.

Credit is "now restricted for a broad range of real estate and non-real-estate-related firms," he said, adding: "Many creditworthy borrowers face significantly stiffer terms and standards, and some find credit simply unavailable, with potentially adverse implications for the economy."

Mr. Greenspan expressed confidence that current economic policies and trends are "laying the groundwork for a more efficient, growing economy" with inflation tamed.

He also reiterated support for bank regulators who have been under fire for contributing to a credit crunch - provided that examiners' actions do not constrict loans to creditworthy borrowers.

Friday's drop in the target for fed funds was the ninth this year. But experts said lower short-term interest rates are not the medicine the ailing economy needs.

Can't Ignore Debt Burden

Some are more concerned about high levels of debt.

"I think fed funds at 2% will not get the economy going again," said one fed funds broker. "I think we just have to wring some of the debt out of the system. The economy is overborrowed."

In this vein, Mr. …

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