BUSINESSWEEK ONLINE : JANUARY 15, 2001 ISSUE
NEWS: ANALYSIS & COMMENTARY Dr. Greenspan's Elixir An aggressive half-point rate cut means the Fed has firmly swung behind Chairman Alan Greenspan's campaign to head off a possible recession. But while the cut will be hugely beneficial, the economy isn't out of hot water yet. THE BENEFITS... SWIFT, BOLD ACTION The speed and size of the cut signals that the Fed believes a steep, tech-based New Economy downturn requires a New Economy monetary policy of assertive counteraction. And more cuts are likely. IMPROVED INVESTOR CONFIDENCE The battered markets soared in the wake of the Fed move. By boosting investors' faith that a bottomless slide can be averted, the Fed may end stocks' hammering by the tech decline. STRENGTHENING CONSUMER BALANCE SHEETS With the big cut, the Fed is injecting a burst of liquidity into the economy. Housing and autos could be among the immediate beneficiaries. THE PROBLEMS AHEAD... EARNINGS DISAPPOINTMENTS With fourth-quarter profit warnings on the rise, more corporations are poised to miss earnings targets. If the bad news keeps up, it could blunt the psychological impact of the Fed's bold move. HIGHER UNEMPLOYMENT Although labor markets are tight now, continued deterioration in the corporate sector could send the jobless rate up from the current 4% range to 4.5% or higher. ENERGY UNCERTAINTY High energy prices could sap consumer spending. With OPEC cartel nations once again weighing lower production quotas, a renewed spike in fuel prices could undermine some of the Fed's actions. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Kindest Cut of All TABLE: Dr. Greenspan's Elixir Will It Do the Trick? History Sides with the Bulls CHART: Celebrating the Cut CHART: Rate Cut Rallies INTERACT E-Mail to Business Week Online

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