With stock markets wobbling and fears of a recession growing, Federal Reserve chairman Alan Greenspan will lead a Fed board meeting today to decide on steps to avert a serious economic downturn. Wall Street analysts expect the Fed to cut interest rates by at least a half a percentage point.
Wall Street's fervent wish is that the central bank will provide a sizable 0.75 percentage point cut in interest rates. Such a reduction would be the biggest Fed move in a key interest rate in nearly a decade, since it cut its largely symbolic discount rate by a full percentage point in December 1991.
Wall Street staged a slight rebound Monday in anticipation of a big Fed rate cut, with the Dow Jones Industrial Average rising 135.70 points to 9,959.11. The Nasdaq Composite Index gained 60.27 to 1,951.18, and the Standard & Poor's 500 index rose 20.28 to 1,170.81.
Many economists believe that strong interest rate relief is needed now, given the huge sell-off on Wall Street. A series of earnings warnings and cautionary statements from tech companies left the Dow with its biggest weekly point drop ever and pushed the Nasdaq below 2,000 for the first time in 27 months.
"The perception is that the sky is falling because of the stock market," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "The stock market is the canary in the coal mine. . . . If the canary dies, we will have a serious and deep recession."
Until this year, it seemed the Fed chairman could do no wrong; a Greenspan victory in the battle against recession was a foregone conclusion. But as the economic news turns increasingly sour, his reputation has taken some hits and there are growing doubts about whether he can guide the economy to something better than a crash landing.
"Policymakers made a tactical error when they didn't lower interest rates earlier this month," wrote Mark Zandi, chief economist at Economy.com., after the stock market tumbled last week.
_ Information from the Associated Press and Knight Ridder Newspapers was used in this report.