Rate cut alone may not fix economy

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Rate cut alone may not fix economy
By Kevin G. Hall | McClatchy Newspapers

* Posted on Thursday, September 20, 2007



WASHINGTON — Wall Street rallied for a second consecutive day Wednesday, still buoyant over the Federal Reserve’s surprise half-point cut in interest rates, but several leading analysts warn that odds remain high for the nation to fall into recession by next year.

After posting their largest one-day gain in nearly five years Tuesday, stocks kept climbing a day later. The Dow Jones Industrial Average closed up Wednesday by 76.17 points at 13,815.56, for a 3.1 percent gain in two days. The S&P 500 closed up 9.25 points at 1529.03, up 3.5 percent over two days.

While the immediate market reaction to the Fed's dramatic action is encouraging, some analysts fear that problems rooted in shaky housing finance still could squeeze consumer spending and drag the economy down.

Others think that the Fed acted emphatically enough to avoid that. In coming weeks economists will watch home sales, retail sales and especially employment numbers closely for signs of who’s right. All are important indicators of consumer spending, which drives about two-thirds of the U.S. economy.

“There is a significant risk of a recession within the next year," Robert Shiller, one of the nation’s most prominent finance experts, said Wednesday before the Joint Economic Committee of Congress.

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