'Marketplace' Report: How Much Will the Fed Cut? The Fed meets Tuesday to discuss short-term interest rates. Marketplace's John Dimsdale talks about what he expects to see.
NPR logo

'Marketplace' Report: How Much Will the Fed Cut?

  • Download
  • <iframe src="https://www.npr.org/player/embed/14502179/14501210" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
'Marketplace' Report: How Much Will the Fed Cut?

'Marketplace' Report: How Much Will the Fed Cut?

  • Download
  • <iframe src="https://www.npr.org/player/embed/14502179/14501210" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

MADELEINE BRAND, host:

Back now with DAY TO DAY.

The stock market is giddy in anticipation of today's Fed meeting. The Fed's Open Market Committee is meeting later today to set short-term interest rates and that could affect credit card rates and home loans.

John Dimsdale joins us now from Marketplace. And John, there were some new economic measurements out today. And do they give us any indication of where interest rates might be headed?

JOHN DIMSDALE: You know, most of today's latest numbers would reinforce a move to lower interest rates. The Labor Department, for example, says wholesale prices fell in August. That was a surprise. The cost of energy and food fell. The lack of inflationary pressure usually gives the Fed some comfort that they can reduce interest rates without fear of overheating the economy. Another sign that the economy is ailing and needs a jolt from reduced rates, home foreclosures hit a monthly record in August. The number of foreclosures was 115 percent higher than a year ago. The sobering news from this, the turmoil in the housing market has yet to run its course.

BRAND: Right. So homeowners are looking for those lower interest rates and that is the expectation, right, that the Fed will lower interest rates?

DIMSDALE: Yeah, yeah. For most people, the question is by how much whether it's a fourth of a percentage point or half, just about everyone began assuming that the Fed will lower interest rates last Friday when the August jobs report showed that the economy had lost jobs for the first time in four years. That sparked some real fears that the economy could be headed toward a recession. How much the Fed eases interest rates depends on how aggressive the central bankers feel they have to be to attack the problem. If the Fed goes so far as to cut half a percent, it means that these experts think the drag on the economy is powerful enough that some strong medicine is necessary. But you know, sometimes that gets investors nervous that maybe the Fed is really worried about the economy falling into a recession and they pull their investments. So, you know, there's some psychology at play.

BRAND: Well, if the Fed rejects the conventional wisdom and holds off lowering interest rates today, what will happen?

DIMSDALE: Well, some people think that that's possible just because of worries about inflation. There were other signs just this morning that the economy is strong and doesn't necessarily need reduced interest rates. For example, the big Wall Street investment bank, Lehman Brothers, announced its third quarter profits were down but nowhere near as much as had been feared and that's seen as a sign that the housing downturn isn't hurting banks and brokers that much. In a conference call with reporters, Lehman executives said they thought the worst of the credit crunch was over. And Best Buy reported better than expected profits this morning. The big retailer is an important gauge of whether consumers are closing up their wallets after they hear all these bad economic news.

So if you'll look at these indicators, some say that the Fed would be wrong to cut interest rates now because inflation is still running harder than most central banks are comfortable with.

BRAND: Thank you, John. That's John Dimsdale of the public radio show Marketplace. And Marketplace is produced by American Public Media.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.