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Will the Fed's Interest Rate Cuts Avoid Recession?Aired January 31, 2001 - 2:21 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NATALIE ALLEN, CNN ANCHOR: Now back to the quiet sanctity of our studio here and we're with Jeff Rosensweig. We were talking about this. As we said, no surprise, but let's talk about what Alan Greenspan is trying to fight with this economy right now. They cited the lackluster business growth and consumer confidence dropping.
What are the big warning signs in this economy, Jeff, that concern you?
JEFFREY ROSENSWEIG, EMORY UNIVERSITY: Well, Greenspan and the Fed are doing a great job because see, the markets aren't moving much right now because everyone expected this. But the fact is at least he's given us two shots of medicine within about three weeks of each other, and he'll probably give us one more shot. So in other words, he's watching the consumer confidence. He's watching the Purchasing Managers Index. He's got his finger on these things that are kind of right on the street level.
Some people talk about the unemployment rate. They say the unemployment rate is only 4 percent, which is very low. Maybe we're not in trouble. No, we're in trouble. The unemployment is a lagging indicator. It kind of tells us what was happening in the past. I know because after this appearance today, whether or not I'm doing a good job, I'll be getting calls from alumni of my university saying, oh, I saw you on CNN. You did great. And I'm thinking, here I am. I'm being set up. They must be losing their job.
There are layoffs across the board, and I'm glad the Fed has the sensitivity and the compassion to realize we need the medicine now. They layoffs are now. A tax cut could be helpful, but that's in the future.
So the good thing about the Fed, and Joie and I discussed this in December, I said they're going to come back a couple of times in January hard. And until this episode, Greenspan usually moved in 25 basis point increments. He's come up with two 50s in a row, just as we predicted.
In other words, he is watching the action here. When you see Amazon and you see Sarah Lee and you see Gillette and you see Time Warner, you see great companies laying off good people, you know that we're going to need continual doses of this medicine. I'm still predicting one more cut sometime in the next few months.
ALLEN: And can all of this add to up to moves that will avoid a recession this year?
ROSENSWEIG: I think we'll avoid a recession. As you saw this morning when we got this GNP report, we're right on the cusp. Yes, we're in a situation where we're not growing fast enough to create enough jobs to absorb our growing labor force. So, if nothing else, we're going to have a rising unemployment rate. So, that's going to happen.
I think we can avoid a technical recession, but it sure feels hard out there in the street for people. I think we will avoid technical recession is my answer. On the other hand, it's still going to be rough going. And unlike my usual optimism, when I tell people, oh, I'd be buying stocks for the long run. I'm still buying stocks for the long run and I'm not selling.
But I'm keeping a little cash on the sideline. I think we'll get a little bit of bumpy news in the next few weeks. Maybe then a great opportunity to buy great companies like a Nokia, et cetera. It's going to be a few rough months. I say no recession, but I also think if you have a good job, tell your boss what a fine person they are today.
ALLEN: Very good advice. Jeff Rosensweig, thanks as always. We want to see you again, all right, throughout the year. We'll need you around. Thanks a lot.
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