Toward Zero: As Fed Cuts Rates Yet Again, Its Powers Seem to Be Limited --- Nation's Shaky Confidence Resists Monetary Cure; Japan's Spooky Example --- Auto Sales Offer Some Hope
The Federal Reserve, delivering the lowest short-term rates since John F. Kennedy was president, is pursuing its most aggressive campaign in recent history to stimulate the economy. But it's a campaign whose goal seems more elusive with each passing day.</br></br>Yesterday, the Fed cut the target for its benchmark federal-funds interest rate to 2.5% from 3%, and left the door open to further rate cuts. "The terrorist attacks have significantly heightened uncertainty in an economy that was already weak," the Fed said in a statement explaining its action.</br></br>Though the Fed's move was widely anticipated, investors reacted positively. The Dow Jones Industrial Average jumped 113.76 points, 1.29%, to 8950.59.</br></br>Including its emergency rate cut just before the nation's stock markets reopened on Sept. 17, the Fed has chopped U.S. rates a full percentage point since Sept. 11, and by a whopping four percentage points since the start of the year.</br></br>But lower interest rates work only if they induce consumers and businesses to borrow -- and then spend -- more. And since the Fed began cutting rates, the growth in business borrowing has ground to a halt, and consumer-credit growth has slowed sharply. Only home mortgage lending is still growing at a healthy pace, and even that has taken a hit in the wake of the terrorist attack.