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Fed Cuts Interest Rates

Aired December 11, 2001 - 14:25   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: The Federal Reserve Bank moved here in the United States in the face of signs that the U.S. economy is not getting better fast enough.

The Federal Reserve Board voted to lower the -- the lending rate by a quarter of a point. And for the latest on that let's go to New York and to our Jan Hopkins -- Jan, tell us more about it.

JAN HOPKINS, CNN CORRESPONDENT: Hi there, Judy. This is the 11th time this year that the Federal Reserve has lowered interest rates in hopes of getting the economy restarted. The Fed, though, still seeing signs of slowdown risks. And hints that there may be lower rates ahead. Rates are very low, though, at this point. This is a 40-year low for a Fed funds rate. It is under 2 percent: 1 3/4 percent. And if you're a saver, getting bank CDs, you know that interest rates are low.

Mortgage rates are also down. It also means that home equity loans will probably be lower. The prime lending rate is now 5 percent. It probably will be decreased to about 4 3/4 percent. And the stock market is rallying. The Dow Jones Industrial Average is now up about 47 points, the Nasdaq is up 31 points. That's slightly higher than the market was before this announcement, which was really expected on the part of the markets --Judy.

WOODRUFF: And yet, Jan, the markets have to some extent already begun to take this into account, hadn't they?

HOPKINS: That's right. The markets are really saying that the economy is going to turn. Basically the beginning of next year, I guess, is what is kind of baked in to stock prices at this point. And some Wall Street economists actually today were betting that the economy might be turning right now.

So it's still too soon to tell. Federal Reserve doesn't buy that. It sees the risk of slowdown, and is ready to lower rates more if necessary -- Judy.

WOODRUFF: All right. And Jan Hopkins, one final question. For people with those variable mortgage rates, when do they look for change or reduction in those?

HOPKINS: Well, I guess depends on when you're mortgage refixes. It is usually about once a year. If you're doing it now, it should be lower. And mortgage rates overall have come down and they're back up a little bit, about 6 1/2 percent. But in the summer of 2000, mortgage rates were 8 1/2 percent, so that's quite a decline and a lot of people have taken advantage of those lower rates and refinanced their mortgages. They have a lot of extra money to spend and that's part of the reason that economists are betting that the economy is going to turn soon.

WOODRUFF: All right, Jan Hopkins with the report on the markets and the market reaction to the announcement today by the Federal Reserve that it is lowering the federal funds rate by another quarter of a point.

As you just heard Jan say, these are the lowest interest rates in the United States in the last 40 years.

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