Marketplace: News Archives

Tuesday, December 19, 2000

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It's Tuesday, the 19th of December. I'm David Brancaccio.

The Federal Reserve did not lower interest rates today, but before we go any further, an explanation is in order. The Fed can boost a slowing economy by making money cheaper to borrow. Short of that, the guardians of interest rates can send encouraging signals to market players, businesses and consumers by declaring which way they're leaning. Until this morning, this "bias," as it's called, was learning toward higher interest rates. Fed members could have turned that down one notch to "neutral," but instead today went a step further by saying that they're now leaning toward a cut in interest rates soon. Marketplace's Michelle Brier reports from the New York.

Brier: "With corporate profits under pressure, slower consumer spending and sluggish holiday retail sales weighing them down, investors hoping for an interest rate cut from Santa got something almost as good today."

Cohen: "The Federal Reserve seems to have gotten into the holiday spirit."

Brier: "Merrill Lynch senior economist Gerald Cohen says although the Federal Reserve left interest rates unchanged for now, the key Federal Funds Rate remains at 6.5 percent. Wall Street got an early present when the Fed switched its bias from tightening directly to easing, an unusual step."

Cohen: "Since Allen Greenspan has been Chairman of the Fed, the Fed has not moved from a tightening bias to an easing bias immediately. They normally don't do that. They normally go from tightening to neutral and neutral to ease."

Brier: "In its statement after the meeting, the Fed said the economy was slowing so fast there's now a threat of a sharp downturn, and left the door open to a lowering of rates early next year. The immediate reaction on Wall Street was a sell off in stocks. Some investors may have been disappointed the Fed didn't cut rates right away. In New York, I'm Michelle Brier for Marketplace."

Early in the day, a rumor swept the stock market that the Fed would actually cut interest rates and a lot of folks got it in their head that the rumor had to be true, so they bought stocks. When the rumor turned out to be wronger than a bolo tie on a rattlesnake, as Dan Rather might say, the geniuses had to sell, pushing the Nasdaq and S&P 500 indexes to 12 month lows. The Nasdaq fell 112 points, 4.3 percent, while the Dow lost 61 points or 0.6 percent. Bonds went up sharply, with the yield on the 30-year Treasury falling to 5.47 percent.

So we now have the Fed warning that there's a risk of a sharp turndown in the economy. The next President, George W. Bush, also indicated his concern about this in Washington this week. All this negative economic from Washington and Wall Street is making some no-nonsense folks in the Midwest nervous. From Columbus, Ohio, Bill Cohen reports on the sensibilities of those looking at the economy there.

Cohen: "Stop talking economic doom and gloom, or it will become a self fulfilling prophecy. That's the warning from the President of the Ohio Senate."

Finan: "It seems like every time the Fed's going to meet, everybody wants to talk about recession and, you know, pretty soon we're going to talk our way into this.

Cohen: "Richard Finan worries if the experts keep warning of bad economic times ahead, consumers will get pessimistic too. Finan's worry is justified according to some economists."

Dunn: "Yes, we do believe that if consumers get a gloomy outlook about their future, they're worried about unemployment, about how to pay their bills, they will begin to tighten their purse strings.

Cohen: "And, says Lucia Dunn, economics professor at Ohio State University, when consumers stop buying cars, computers and appliances, it sets off a chain reaction."

Dunn: "Small businesses may stop stocking in so much merchandise, consumes stop making those extra purchases, people stop eating out and restaurants feel it. All those economies filter down and when the final numbers are in, yes, all economic activity is lower than it was before."

Cohen: "Dunn says economists, politicians and even reporters should put the slowdown in context and include the positive. For example, unemployment remains at a 30 year low. And Senator Finan agrees. He says things just look bad because the economy has been so good."

Finan: "We have been so spoiled by such a booming economy that a normal economy tends to scare the bejoobies out of us."

Cohen: "In Columbus, Ohio, I'm Bill Cohen for Marketplace."

In its final day of legislating last Friday, the 106th Congress dealt a blow to plans by the Federal Communications Commission to allow more than a thousand churches, schools and community groups to operate low-power FM radio stations around the country. The license-holders would be limited to transmitting only ten to 100-watts of power, meaning signals won't reach much more than three miles. As Marketplace's John Dimsdale reports, established radio broadcasters lobbied against the low-power stations, arguing their signals would interfere with existing programs.

Dimsdale: "The FCC announced the schedule for starting the low-power stations last January…has already received 1,200 applications from would-be community broadcasters… and was about to begin issuing licenses. The Commission says the new mini-stations can be squeezed into spaces on the dial without harming existing signals. The idea is a pet project of FCC chairman William Kennard, who says the thousand or so neighborhood radio stations represent an alternative to the rapid consolidation of the industry into a few mega radio networks."

Kennard: "As I've traveled around the country, many people are frustrated that we can't use the airwaves for more non-profit uses, especially for our churches. And so low power FM is a way to allow these organizations to have a little slice of the public's airwaves."

Dimsdale: "But established radio networks and stations, represented by the National Association of Broadcasters and National Public Radio, say the neighborhood programs would interfere with their transmitter signals. They convinced Congress to put severe limits on the low-power project, despite strong support from religious, consumer and neighborhood organizations who claim the big broadcasters are merely afraid of the competition. Even though many of the potential low-power broadcasters are churches and religious organizations, the National Religious Broadcasters, with more than 1,700 member stations, lobbied against the new licenses. President Brandt Gustavson says signal interference was not the only problem raised by the low-power community broadcasts."

Gustavson: "What is going to be the quality of those stations, and I'm not particularly talking about the religious stations there, although that would be included. When volunteers are essentially going to run these stations, we would hope there would be a maintenance of decent quality on them."

Dimsdale: "Congress has ordered the FCC to maintain existing buffers between stations on the dial, and to conduct tests in nine cities to find out whether the low power signals interfere with licensed full power programs. In Washington, I'm John Dimsdale for Marketplace."

And we conclude the newscast today with the corporate version of We are the World. The French company that owns Universal Pictures and Universal theme parks will no longer also sell booze. Seagram, which until recently was Canadian, is selling the likes of Absolut Vodka and Chivas Regal to Diageo of Britain and Pernod Ricard of France for the equivalent of $8.2 billion. Vivendi, which is also buying Canal Plus, will become the second biggest media conglomerate in the world, next to AOL-Time Warner.