"Persistent pressures on profit margins are restraining investment spending and, through declines in equity wealth, consumption," said the FOMC. Many media and advertising companies have reported clients have postponed media buys during the first quarter on concerns that weak consumer confidence will affect their profits during the year.
The stock market was not appreciative -- disappointed traders on the floor of the New York Stock Exchange floor the announcement -- and the market began a slide that lasted all afternoon. The Dow Jones Industrial Average dropped 238.35 points to close at 9720.76 points and the Nasdaq index dropped 93.74 to 1857.44. Indeces had been relatively stable and trading volume was low all morning as investors waited out the FOMC meeting.
Most Wall Street insiders had expected at least a 0.5% cut, and analysts had begun agitating for a larger cut in recent weeks, on the grounds that the market had already priced in the expected cut and would require more drastic measures after the continuing profit warnings issued by most companies in their fourth-quarter statements. Merrill Lynch & Co. chief economist Bruce Steinberg forecast the Fed will likely cut rates another 0.5% at its two upcoming meetings on May 15 and Aug. 21. -- Mercedes Cardona
Copyright March 2001, Crain Communications Inc.