"The Fed probably will continue easing until it has clear evidence of a self-sustaining recovery," said Salomon Smith Barney chief economist Kermit Schoenholtz.
Before Sept. 11, consumer demand was the saving grace to the economy's woes. Despite prevalent signs of economic weakness, consumers continued to spend on cars, homes, vacations and other peripherals that helped keep growth on the plus side through the second quarter of the year. Even then, there were questions as to how much longer the consumer could keep things going.
Unfortunately, the attacks definitively dealt with that. The U.S. economy, already struggling in the second quarter, probably shrank in the just-ended third quarter and is likely to do so in the fourth after the attacks depressed consumer and business spending, according to most analysts' predictions.
Today, President Bush's economic adviser, R. Glenn Hubbard, became the first administration official to forecast the nation's first recession in more than a decade. The textbook definition of recession is two consecutive quarters of negative growth.
Quagmire for the Fed
All that has left Greenspan and his fellow central bankers in a bit of a quagmire: Do they continue cutting rates, knowing the impact of each reduction takes anywhere from nine to 12 months to take effect, or do they sit back and wait for their previous rate cuts as well as various initiatives currently being pondered by Congress to kick in?
While most agree the added measures will work, not everyone agrees on how much is really needed or when the effects will make themselves known.
"The Sept. 11 attacks were an unprecedented shock to the system, but there's no doubt in our mind that this massive stimulus will work, promoting recovery by mid-2002 or sooner," said Steve Slifer, chief economist with Lehman Brothers. "The issue seems to be exactly what kind of combination of monetary and fiscal stimulus will spur that to happen, and when."
But William Dunkelberg, chief economist for the National Federation of Independent Business, sees things a little differently. "There's enough stew in the pot, we just have to bring it to a boil and see what it tastes like," he said, adding that he doesn't think the Fed should be lowering rates at all.