U.S.: What Greenspan Saw In The Data

What a way to ring in the new year. Coming after another one-day plunge in the Nasdaq, a drop in consumer confidence, and a purchasing managers' report that confirmed the manufacturing sector is in recession, the Federal Reserve decided it could wait no longer to see how the 2001 economy would play out. And so, in a stunning move on Jan. 3, policymakers cut short-term interest rates. More important to the outlook, the Fed suggested more cuts could be on the way.

The Fed said that its action to cut the federal funds rate by a half-point to 6%, and the discount rate by a quarter-point to 5.75%, was "taken in light of further weakening of sales and production, and in the context of lower consumer confidence," as well as tight financial conditions and high energy prices that are "sapping household and business purchasing power."