Recession Watch: Out Of Ammo?

In the past year, Alan Greenspan, chairman of the U.S. Federal Reserve, has cut interest rates 11 times, from 6.5 percent to 1.75 percent--yet the latest numbers from 2001 are looking just about as bad as ever. Inflation is not the problem: the consumer price index rose only 1.6 percent last year (and actually fell by 0.2 percent in December), its smallest rise since 1998. But that only reflected how deeply the U.S. economy has sunk into the doldrums. Business inventories declined for the 10th consecutive month in November, and industrial output fell 7.2 percent in the fourth quarter--3.9 percent for the whole year. Worse off was the manufacturing sector. It reported a decline of 0.1 percent in December, capping its worst year since 1982.

Analysts predict that Greenspan will slash rates again in late January. Will it work this time? The Business Cycle Dating Committee, which officially determines when recessions start and finish, will decide whether an upturn did take place, and exactly when, but only months after the fact. If it turns out an upturn did recently occur, should Greenspan get the credit? Or should thanks go to the American consumer, who has steadfastly kept on buying houses, cars and electronic goods throughout the 10-month-long downturn? All Greenspan can do is cut short-term rates down to zero. But perhaps he would do just as well to wave his credit card at the mall, shouting: "Shop till you drop!"

Recession Watch: Out Of Ammo? | News