The Federal Reserve’s interest rate cut Tuesday drew a variety of reaction in Floyd County.
Both Jerry Dempsey Jr., chief executive officer of Dempsey Lord Smith LLC, and Mike Crego, co-branch manager of Wachovia Securities (formerly AG Edwards & Sons) praised the Fed for taking action to stimulate Wall Street and the national economy.
But Frank Stephenson, associate professor and department chair of economics at Berry College, thinks it’s unwise for the long term.
The central bank announced midafternoon that it would cut interest rates by three quarters of a percentage point. But the stock market had anticipated the move and, following stronger-than-anticipated earnings reports from two investment banks, Lehman Brothers and Goldman Sachs, the Dow Jones industrial average jumped more than 300 points ahead of the announcement. Though many on Wall Street had expected a full point rate cut from the Fed, the Dow continued to surge. At the market’s close, the Dow stood at 12,392.66, a gain of 420.41 or 3.5 percent.
The Fed’s rate cut is intended to stimulate the economy by lowering the cost of mortgages, car loans and other consumer loans.
“It’s good to see the Fed proactive, to try to stimulate the economy,” Crego said. “At some point it will have an impact. It’s just a question of when.
“People are excited to see this positive news, but they’re asking ‘Is this really for real, is this sustainable, have we hit bottom?’ We’re trying to remind them that in the stock market there are short-term cycles, and we eventually pull out of a down cycle. We feel like stocks belong long-term in portfolios that are properly diversified.”
“Our clients are very happy with today’s rally,” Dempsey said. “We have been trying to pick up good bargains for our clients the last few weeks, stocks that have been beaten down more than they should have been beaten down.
“It’s a good sign that the Fed wants to do what it can to stimulate the economy,” Dempsey said.
Stephenson, though, said the move may be unwise for broader reasons.
“There are strong indications, most notably the decreasing international value of the dollar and the rapid rise in prices of commodities such as oil and gold, that the Fed’s monetary policy is already overly inflationary. Today’s rate cut further exacerbates the likelihood of 1970s levels of inflation, inflation that carries more long-term harm than short-run gain for the economy.”
The Associated Press contributed to this report.
