RENEE MONTAGNE, host:
On Fridays we talk about Your Monday. And today not everyone is happy about the Federal Reserve's decision to cut interest rates. The Fed hoped to treat a worsening housing bust. To find out how the patient has responded to the Fed's medicines, we turn to David Wessel. He's economics editor for The Wall Street Journal and frequent guest on this program.
Good morning.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning.
MONTAGNE: The rate cut has made investors happy, at least so far. The stock market has been consistently up. But it seems to have angered a lot of what you might call ordinary people. Why is that?
Mr. WESSEL: That's a great question, Renee. You know, we asked people on wsj.com, the online version of The Wall Street Journal, did they think the Fed's rate cut decision was appropriate? It's not a random survey. It's nonscientific. But I was stunned. We get seventy-nine hundred people responding and 60 percent of them said the Fed was too aggressive. And I've gotten e-mail, one I got the other day was - writes: let the speculators and those that have priced housing behind any real-world salary die, die, die. And it was a Hotmail account, so then there was a little ad at the bottom that said: share your special parenting moment at this Web site.
(Soundbite of laughter)
Mr. WESSEL: I think what's going on here are two things. One is there's always a camp of people who worry that when the Fed cuts rates because of a financial problem they are somehow creating an incentive for people to make foolish bets in the future. And they never learned their lesson if the Fed sort of bails them out. And that's common, and I don't think that's unusual this time.
What is unusual is there seemed to be a large number, probably a minority, but a large number of people who just are angry at the speculators, angry at the hedge funds, angry that the people on Wall Street are making so much money. And they see this somehow as the Fed helping those people at the expense of everybody else. And I think that anger is coming out in the kind of e-mails we're getting.
MONTAGNE: Well, it says that the Fed is bailing out the big guys and somehow rewarding reckless speculation and greed. Is there something to that?
Mr. WESSEL: Yes, there's always something to that. That's the dilemma of the central banker. The central banker knows that if he or she cuts interest rates in a time of financial crisis in order to keep the markets going, he or she is going to help somebody in the banking business. That's the way it works. And they take that risk, they take that as given in order to save the rest of the economy from going on into recession.
MONTAGNE: Wall Street really wanted a rate cut. Is it the case that what's good for Wall Street could be good for the rest of us?
Mr. WESSEL: Could be, yes, but it's not necessarily the same thing. I think what will determine the answer to that question remains to be seen. If the Fed has injected just enough adrenaline into the system to get lenders lending again, so that people who want to buy houses can get mortgages, so that businesses that need to borrow can borrow money to invest and expand their businesses, then it'll prove to have been in the best interests both of Wall Street and the whole economy. If they did too much, and we end up with a lot of lousy investments paying off and we get a lot of inflation or something, then it'll be seen as too much of a sop to Wall Street and not worrying enough about the real economy.
MONTAGNE: Of course the traditional risk of cutting the interest rate is that it would lead to inflation. Is that something we should be worrying about now, inflation?
Mr. WESSEL: After all, food prices are up, energy prices are up, and the unemployment rate is still relatively low, so there is an inflation risk out there, I think. But we're starting from a very low level of inflation, and the Federal Reserve had to decide what was the bigger risk. And they decided we'd rather risk a little inflation in the future in order to avoid this credit market problem turning us into a big recession.
MONTAGNE: And just finally, David, you're saying that economics isn't an exact science, that we can't really predict the effect of these sort of carefully crafted policies and formulas on the economy.
Mr. WESSEL: Absolutely. And especially when it comes to being a central banker, it's much more art than science.
MONTAGNE: David, thanks very much.
Mr. WESSEL: You're welcome.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal.
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