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Is the Fed's Action Just in Time or Too Late?


The Federal Reserve made another assault yesterday in a war it has already lost, suggested a pessimistic group of economists who feel a recession is inevitable this year - if one is not already under way.

By lowering interest rates for the fourth time in less than four months, Alan Greenspan and his colleagues have made it less expensive for businesses to invest in new equipment and for consumers to buy cars and houses.

But it may not be enough to end the thousands of job cuts that companies are making, and it will not persuade businesses, many of which spent too much money during the bull market of the 1990's, to buy more equipment when they already own too much.

That is what worries those economists who shrug off yesterday's 399- point gain in the Dow Jones industrial average and remain at odds with the widespread belief that lower rates will spur consumer spending and quickly revive corporate profits.

Stocks may rise spectacularly after interest rate cuts, but lower borrowing costs have always needed months, or even a year, to affect people's decisions about most big purchases. Because of this delay, these economists say, the economy will continue to become weaker before it can recover.

In the process, the longest economic expansion in American history would end. "It is too late to prevent a recession," said Anirvan Banerji, the director of research at the Economic Cycle Research Institute in New York. "The process that leads to job losses is already in motion..."

VIEW THIS ARTICLE ON NEW YORK TIMES