Editorial: More Help From the Fed

The signs of a faltering national economy are all around us, as more and more companies report plummeting earnings, the jobless rate rises and investment spending falls.

Add to this the skyrocketing cost of fuel and the insult-to-injury of the U.S. Postal Service moving to raise rates for the second time in a few months, and it’s clear that we are headed for a larger swoon unless decisive action is taken.

The amount of suffering this weak economy is inflicting on trucking was evident last week, when FedEx Corp. issued its second profit warning in five weeks, OTR Express of Olathe, Kan., announced it will close its doors, and parts supplier TransCom USA filed for bankruptcy protection.

The Federal Reserve needs to cut interest rates again when its policy panel meets this week.

Wall Street analysts are predicting the Fed will lower its key rates by a half-point this week, which would push its benchmark federal funds rate to 4%. That rate is what banks charge for overnight loans to other banks, and it is used to set most other types of interest rates.

The Fed has already cut rates four times this year, which has helped. But the evidence shows that there’s a lot more work to do because things seem to be worsening.

For instance, FedEx in April reported that its domestic express volume was down, but that international shipments and its ground delivery business volume were still growing.

Last week, however, the company reported that its domestic express business was falling at a faster rate, and that its international shipments were also flattening. Only its domestic ground service showed any growth, and the company attributed that to a new product line rather than its core business.

FedEx said its domestic express volume in April was 9% below the previous year. One Wall Street analyst said the severity of the decline was obvious, because it dwarfed the company’s steepest year-over-year decline of the last recession, which was 1.6% in December 1990.

Even if the Fed does cut rates this week, it must not rest on its laurels. Nursing the economy back to health is going to require several more cuts, perhaps down to the 3% level that the Fed’s interest rates reached in 1992 and which finally put the economy back on a strong growth path.

This article appeared in the May 14 print edition of Transport Topics. Subscribe today.

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