An Urgent Bid to Lift Economy ; Fed's Half-Point Cut in Interest Rates Monday Is Part of Rare Show of 'Economic Solidarity' in Wake of Terror Attack

By Ron Scherer writer of The Christian Science Monitor | The Christian Science Monitor, September 18, 2001 | Go to article overview

An Urgent Bid to Lift Economy ; Fed's Half-Point Cut in Interest Rates Monday Is Part of Rare Show of 'Economic Solidarity' in Wake of Terror Attack


Ron Scherer writer of The Christian Science Monitor, The Christian Science Monitor


The surprise interest-rate cut by the Federal Reserve Board yesterday is aimed at bolstering an economy that is now in grave danger of slipping into a recession.

By making a half-point rate reduction before the market even opened - the first time it has done so in US history - the Fed was seeking to bolster consumer and investor confidence in the wake of last week's terrorist attacks.

The Fed move joins coordinated efforts by central banks in Europe, Japan, and Canada to inject large amounts of money into the global economy.

Beyond that, corporate chieftains, brokerage firms, and even many individual investors in the US pledged to buy stock yesterday in a show of economic solidarity.

"It's obviously unprecedented what's happened in New York...," says Caroline Atkinson, a former Treasury official under President Clinton, of the coordinated efforts to get the markets back up and boost confidence.

This latest Fed cut, which will lower short-term borrowing costs, will be particularly important for businesses borrowing money to get them through the tough times.

It will also help consumers, hit by layoff news as well as shaken by last week's attacks, by reducing the interest rate on credit cards and home-equity loans.

In fact, economists believe the Fed's aggressive move, combined with some stimulative dollars from Congress, may do more than just pull the economy out of its slump next year. It could propel growth forward.

"We're going to see quite a significant rebound here," says Lyle Gramley, a former Federal Reserve governor and now a consulting economist with the Mortgage Bankers Association in Washington.

The Fed's move yesterday followed an active week, when it injected extra money into the system by purchasing $38.25 billion worth of government bonds from investment firms. Usually, the Fed sells or buys no more than a few billion dollars of bonds in a day.

And the Bank of Japan lent its struggling banks $17 billion one day last week.

Global pledge

"We are committed to ensuring that this tragedy will not be compounded by disruption to the global economy," stated the governments of the US, Canada, Britain, Japan, Germany, Italy, and France.

In yesterday's move, the Fed not only cut rates and injected money into the economy, but also assured financial institutions that it would lend money to cover short-term cash needs. …

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