Once More Into the Breach

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US Federal Reserve Chairman Alan Greenspan

After eight rate cuts so far this year, Alan Greenspan knew Tuesday that rate cuts alone aren’t going to turn this thing around — not on Wall Street if investors’ heads are elsewhere, not in the economy if nobody wants to borrow more money even if it’s free. But with Wall Street and the economy both expecting another rote 50-point cut — this one to bring the fed funds rate down to 2.5 percent for the first time in 40 years — he also knew Tuesday that he couldn’t stop now.

Because the Fed also knows what it doesn’t know. "The terrorist attacks have significantly heightened uncertainty in an economy already weak… Business and household spending as a consequence are being further damped," the Federal Open Market Committee said in its statement before telegraphing that its rate-slashing regime wasn’t over just yet.

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"The risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." Man, are they ever.

"Heightened uncertainty" — another understatement. The cloud of what may or may not happen at home and abroad in the coming weeks/months/years’ war on terrorism is still weighing on Wall Street because it is still weighing on businesses, because it is still weighing on consumers. Will shoppers, lured hesitatingly back out to stores of late by patriotism and deep discounts, keep coming out in greater numbers as the winter comes? When they refinance their mortgages, will they spend the extra dough? Or will their confidence collapse under mounting personal debt, deflated portfolios, uncertain job prospects, and well, the whole gas-mask-on-the-cover-of-TIME-Magazine thing?

Consumers have been keeping this economy out of the depths all year — their virtual disappearance in the week or two after Sept. 11 has sent the whole thing tumbling toward the abyss. And Greenspan knows that while his cuts so far haven’t helped discernibly, they haven’t hurt either — if only because after 14 years at the helm, the sight of a fighting Fed has considerable power to comfort businesses and consumers alike.

You can’t fight the Fed, the saying still goes — rate cuts will win eventually, and eventually Greenspan is going to have to take these last few cuts back. But at this point, he’d like nothing better than to have gone too far. Because if the consumer holes up for the winter — and that could happen for any number of as-yet-unknowable reasons — the corporate engines of capitalism have no reason to get into gear again, and this economic hibernation could go on indefinitely.

Another attack on the home front. A Pentagon stumble abroad. Something as rational as a widespread consumer belt-tightening. At this point, it wouldn’t take much. So what’s another 50 points? This is no time for Greenspan to wager his legacy on standing still.