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Latest US Interest Rate Cut May Be Last For a While - 2001-12-11


The Federal Reserve, the U.S. central bank, has cut short-term interest rates by a quarter-percent, its 11th rate cut this year. The "Fed" still sees downside risks for an economy that entered recession eight-months ago.

At 1.75 percent, the overnight fed funds rate is at its lowest level in 40 years.

The steady drop in short-term rates reflects the seriousness with which the central bank views the economic weakness that was deepened by the disruptive terrorist attacks on September 11. Lower interest rates encourage consumers to spend and businesses to borrow for capital investment.

Larry Kudlow, an economic policy maker under President Reagan, believes this is the final rate cut in the current business cycle. "Commodity indexes have bottomed," he said. "Gold prices are stable. The dollar is strong. I do not think we need any more Federal Reserve tinkering. It has taken them 18 months, but they have finally done their job."

Mr. Kudlow's view is not shared by Ed Boehne, a former president of a regional Federal Reserve bank. He believes a further rate cut could come in late January. Mr. Boehne said, "The Fed has left the door open. It wants the flexibility to ease or lower another time or to stand pat. I would think that the open market committee at this time does not know what it is going to do at the next meeting. It is a long time off. I think it will look at the information coming in."

Both men spoke on CNBC television.

Economic data this month have been mixed. There are signs that the Christmas gift buying season is stronger than had been anticipated. But the unemployment rate is at a six-year high and 700,000 jobs have been lost in the past two months.

Analysts say the economy entered recession in March after a record 10 consecutive years of economic growth.

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