WASHINGTON — Federal Reserve Chairman Alan Greenspan is widely expected to swing his interest rate ax for the 10th time this year tomorrow, as he tries to shore up an economy most analysts say has tipped into recession.
Many economists say things are looking so grim that they expect an aggressive half-percentage point cut, the third such move since Sept. 11. But some say the Fed should opt for a quarter-point reduction since its previous nine cuts have yet to fully impact the economy.
Several factors argue for a bold step, analysts say: Inflation is tame, consumers are on edge due to threats of more terrorist attacks, and gloomy data are flooding in - most notably the massive job losses recorded last month.
"Things are terrible," says Paul Kasriel, chief economist at Northern Trust in Chicago. "I think they (Fed officials) feel that they can reverse field quickly if in fact they overdo it."
The Fed has already cut short-term rates nine times since early January to try to reignite the struggling economy. Interest rates have dropped four percentage points.
In addition to monetary stimulus, Congress earlier this year passed a tax cut with rebate checks. Another fiscal stimulus package worth tens of billions of dollars is being debated on Capitol Hill.
Some economists say the Fed will choose to cut only a quarter point in light of these ongoing fiscal and monetary stimulus efforts.
But expectations of a half-percentage point cut were bolstered Friday after the Labor Department reported the economy shed 415,000 jobs in October, the biggest monthly decline in more than two decades. Unemployment shot to 5.4 percent from 4.9 percent in September.
Other data released during the week were no less dismal. The National Association of Purchasing Management said its closely watched gauge of factory activity plunged to 39.8 in October - its lowest level since February 1991.
In another report, the government said consumer spending slid 1.8 percent in September, its biggest decline in more than 14 years. Other data released last week showed a decline in consumer confidence in October, the worst quarterly showing of US gross domestic product in a decade, and a drop-off in construction spending in September.