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December 27, 2000 
U.S. Economy: Leading Indicators Fall, Suggesting More Slowing By Siobhan Hughes, Bloomberg Fed Can't Pull Up On Hard Landing ... Weiss comments WASHINGTON - The index of leading U.S. economic indicators fell in November, marking the seventh month out of eight without an increase, a sign the economy may be slowing more than Federal Reserve policy-makers had wanted. The Conference Board's index, a gauge of economic activity over the next three to six months, fell 0.2% last month after declining 0.3% in October. Last month's drop mostly reflected falling stock prices and rising layoffs. Except for a revised 0.1% increase in September, the index hasn't risen since March, adding to the likelihood Fed officials will cut interest rates next month. "I don't think the Fed is going to want to take any chances of a recession, and they will indeed put interest rates down a little bit," said Clifford Waldman, president of Waldman Associates, a consulting firm in Arlington, Virginia. "The indicators are pointing to significantly slower growth in the first half of 2001," said Ken Goldstein, an economist with the New York-based research group. 
The economy is heading for a hard landing, but there is little that the Fed can do about it. Still, die-hard bulls are yelling loud and clear for the Fed to cut interest rates. But that cure may be worse than the malaise that currently ails the economy. Cutting interest rates might touch off another consumer frenzy. And once consumers started reaching for their wallets, you can be sure that businesses will raise prices to make up for the weak holiday shopping season. Plus, companies are scrambling for any means to inflate earnings so that their stock price won't get hit during the next round of earnings reports. In sum, a rate cut now might overheat the economy and send inflation soaring. And it will only delay the inevitable pain that is long overdue after years of expansion. Like any necessary pain, putting it off only makes it worse. Hopefully, the Fed is smart enough to realize that cutting rates isn't going to cushion the hard landing. But if the Fed bows to pressure from the bulls and cuts rates, look for the economy to pull up a bit, then swoon into a deeper nosedive. |
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