Some Say Rate Cuts Are Just A Scratch; Analysts: Banks Not Following Fed Lead
The Federal Reserve lowered the federal funds rate, a key short-term interest rate, by another quarter of a percentage point to 5 percent on Thursday, but economists and analysts questioned yesterday whether it would be enough to light a fire under the faltering U.S. economy.</br></br>Like a brakeman on a runaway train, the Fed is credited with stopping the economy from falling into a deeper decline by aggressively cutting rates more than 3 percentage points since the recession began in August 1990.</br></br>But with the monetary tools available to Alan Greenspan and his colleagues, it took months to stop the slide.</br></br>Now, according to George Eads, chief economist for General Motors Corp. and a member of the Council of Economic Advisers in the Carter administration, more - much more - is needed.</br></br>"For products like ours people have to have both the ability to buy and the willingness to buy," Eads said. "Rate cuts provide a little bit of help because they cut payments a little. Consumers are telling us they want interest rate cuts. But it's got to be a very large cut to get people's attention.