Fed meeting Tuesday could see another prime rate cut - East Valley Tribune: Business

Fed meeting Tuesday could see another prime rate cut

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Posted: Sunday, March 16, 2003 7:48 am | Updated: 1:38 pm, Thu Oct 6, 2011.

WASHINGTON - Weighed down by war fears, the U.S. economy has faltered in recent weeks, raising the possibility that the Federal Reserve might cut interest rates yet again when it meets Tuesday.

The economy sank deeper again last month.

Retail sales fell 1.6 percent, and the economy shrank by more than 300,000 jobs. On Friday, a University of Michigan consumer confidence index dropped from 79.9 in late February to 75, the lowest level since 1992. More than 400,000 people a week are filing for unemployment benefits, suggesting that the economy is losing more jobs this month.

Most analysts believe that an invasion of Iraq would actually boost the economy. They think a superior American military would win quickly, restoring business and consumer confidence and setting the stage for a robust economic recovery.

But they can’t ignore the possibility that an invasion of Iraq could go awry, which, in turn, could jack up oil prices and tip an already weak economy into recession. Increasingly, analysts also worry that a quick victory might not spark as strong a recovery as they anticipate.

The uncertainty is taking a growing toll on the economy as companies put hiring and expansion plans on hold.

Consider the situation of C.M.I., a Hialeah, Fla., company that makes leather, vinyl and other soft interior trim for vehicles and boats. Michael Novick, the company’s president, recently shelved plans to add three sales managers in California and the Midwest. He made the decision after sensing that his customers weren’t willing to place orders. He noticed, for example, that recreational vehicle dealers stopped restocking their lots in the past few weeks. With gasoline prices high, they fear consumers will shy away from buying these gas-guzzlers.

‘‘Until this uncertainty is over, they don’t want to build inventory,’’ Novick said. He doesn’t want to hire sales managers before there are sales to make. Novick believes the United States will win a war quickly, leading to an economic rebound.

‘‘I know that the war is a political issue, but from an economic point of view we’d like to see something happen quickly,’’ he said. ‘‘Our concern as a company is the longer it takes, the deeper the hole gets and the harder it is to climb out of it.’’

In a recent survey, 57 percent of chief executive officers at small and mediumsize companies described the economy as stagnant.

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