Downbeat News Seen Triggering Fed Rate Cut

With the Federal Reserve interest rate at its lowest level in 40 years, the betting is rising that the coming months will see still greater cuts, Wall Street Journal said Monday, if something doesn’t happen soon to erase the gloomy and downbeat economic news.

At this point, the Journal said, there are two schools of thought – “patient” and “pre-emptive” -- concerning the efforts to trigger an economic recovery.

The “patient” school argues the main source of weakness now – uncertainty related cororate governance and tensions with Iraq – can’t be addressed by monetary policy.

The “pre-emptive” school argues that, as uncertainty drags on, growth will be depressed – which could be offset by support to areas of the economy, in particular consumer spending.

The Fed’s short-term interest rate has stood at 1.75% since December, but, at the August Fed meeting, officials were quoted as saying the risks are now weighted toward economic weakness – which would argue for a decrease.

The Wall Street Journal said the decision will come down to Chairman Alan Greenspan who is known to believe psychology can play a big role in what the economy does, though economic models might predict otherwise

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