December 11, 2001

Interest Rates

At 2:15pm today, the Federal Open Market Committee (FOMC) announced that it had lowered interest rates for the 11th consecutive time this year. The targeted Fed funds rate (rates on overnight loans among financial institutions) was reduced by 1/4 percent, or 25 basis points, to 1.75 percent. In 2001, the Fed funds rate has dropped from a high of 6 1/2 percent to the current 1.75 percent. The Board of Governors likewise approved a reduction in the discount rate (rate charged by the Federal Reserve system on loans to depository institutions) by 1/4 percent to 1.25 percent. The markets had anticipated the latest move by the FOMC and reacted generally positively on the announcement. An earnings-related warning from Merck shortly thereafter dampened the markets move and the Dow and S&P 500 indices headed into negative territory. The NASDAQ managed to hold on to a 9 point gain and closed just above the 2,000 level.

The Fed's bias remains cautionary [a willingness to reduce rates further, if necessary] with the balance weighted towards keeping a watchful eye out for further economic softness. In a generally positive tone, the committee stated that "weakness in demand shows signs of abating, but those signs are preliminary and tentative." With only a 1/4 point move, the Fed has left the door open for a possible further rate reduction at its next meeting.

December 7, 2001

On the Employment Front

The Labor Department reported that the nation's unemployment rate surged to 5.7% in November from October's rate of 5.4%; its highest level in the past five years. November's employment loss of 331,000 jobs added to the 468,000 jobs loss in October culminated in the worst two-month period over the past two decades. Notable weakness in employment was evidenced in the service sector. The service sector let go of 164,000 jobs in November, after recording a significant loss of 327,000 jobs in the previous month. The all-important manufacturing sector also showed meaningful weakness in November, losing another 163,000 jobs following a loss of 124,000 manufacturing jobs in October. Consumer spending, which accounts for approximately two-thirds of GDP, is closely tied to the employment picture. With unemployment rising and consumer and business spending continuing to contract, the current recession is likely to be longer and deeper than many analysts/economists had earlier thought.

December 5, 2001

On the Currency Front

The Government of Argentina is restricting cash withdrawals to $250 per week from bank accounts in an effort to avert a run on the banking system. Argentine citizens are worried about the country's monetary stability and a further devaluation of the peso - given the country's recent $132 billion debt default. Long lines are currently forming outside banking institutions and at cash machines. On November 30th alone, $700 million was pulled out of bank accounts. Additionally, Argentina's government has restricted the transfer of funds abroad to $1,000 per month.