Residents respond to decrease
U.S. stocks fluctuated then fell after the Federal Reserve cut interest rates by a half point, with the Dow Jones industrial average leading the charge down 238 points by end of day Tuesday.
The Nasdaq composite index slumped 94 points.
Many investors were hoping for a larger rate cut to the tune of a 0.75 percentage point to spur spending among businesses and consumers and thus jump-start a sagging economy.
The half-point reduction was the Fed’s third this year.
Investors are counting on the central bank to remain alert to signs the economy is at risk of falling into recession.
“From my perspective, the three-quarter point rate cut would have been a positive thing,” said Cheryl Sillings, financial consultant for Brookstreet Securities Corporation of South Lake Tahoe.
But as with other key economists and financial managers, Sillings understands the reasoning behind the incremental step.
She points to the summer of 1982 when the Fed cut rates by two whole points, sending the economy spiraling into an inflationary mode.
“Because of that history, they’re going to be real careful,” she said. “You cut too much, you create inflation.”
Still, many investors – including her clients – are hanging into the market.
“If they sell out now, then they’ll kick themselves because they’ll sell at the bottom,” she said.
One perspective did take her by surprise.
Some investors wondered if the conservative cut meant the Fed was withholding inside information.
“What does the Fed know that we don’t?” she said one client asked.
Either way, the Fed’s Board of Governors is damned if it does and damned if it doesn’t; Sillings described a “no-win” situation.
She believes the move will keep the economy on an even keel, but it won’t give the needed nudge to push a fluctuating, uncertain sentiment in the market.
“Unless we have some kind of event, I don’t think it will go anywhere,” she said.
And, the Bush administration’s $1.6 trillion tax-cut package won’t provide the remedy.
“That’s so mired in controversy, I don’t think it will help either,” she said of the proposal seen as a poison pill.
Nevada’s 2nd District congressman is still hopeful.
“That’s why we need to pass (President George W.) Bush’s tax-cut plan,” U.S. Rep. Jim Gibbons, R-Reno, said.
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