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June 27, 2001

Fed Can't Stop Recession

The Fed all but announced today that their previous rate cuts, however aggressive, have done little to stimulate the economy. Its decision to cut rates by a quarter point rather than a half point indicates that it is ready to admit that rate cuts are not going to derail the oncoming train of recession. Probably the only reason that the Fed did not abandon rate cutting altogether is because holding steady on rates would have sent Wall Street reeling.

But we think Wall Street will react with a selling wave anyway. Wall Street always has its hopes set on the next big rate cut and the belief that the Fed can save an ailing economy, but that's not happening here. The economic news hasn't gotten any better since the last rate cut: businesses have cut spending dramatically, they've cut thousands of jobs, and sales and earnings are dropping. Even consumers have started to cinch up their pocketbooks.

Thus, it won't be long before investors lose faith in a quick economic recovery and dump their stocks.

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