By Anne D. Picker, International Economist,Econoday
Monday, August 27, 2001

Now that the Federal Reserve Open Market Committee (FOMC) delivered the expected 25 basis point interest rate cut, investors (at least those not on vacation) are ruminating over the Fed's accompanying statement. Much to their disappointment, the statement didn't really say anything new. The FOMC has not seen the light at the end of the tunnel yet, and for investors, that was disappointing news. It means they will have to wait beyond the third quarter for the profit outlook to improve. But market players need to be reminded periodically that it takes time for interest rate cuts (or increases) to work their way through the economy. With the first cut just about seven months old, the positive effect should be kicking in soon. It can take anywhere from 6 to 18 months on average to benefit from interest rate moves.

It was generally a quiet week for economic news with no central bank meetings in Europe or Asia and just a few key indicators being released. The German Ifo business sentiment survey boosted the euro when it rose for the first time in 6 months and price pressures on all levels eased, but flat second quarter GDP growth had the reverse effect. British GDP rose on continued consumer spending despite downside inventory adjustment. Easing inflationary pressures make it less difficult for the ECB to cut interest rates, at last, and help the flagging European economies. However, this is not a sure thing. Prices are still significantly higher than the ECB's price stability target while M3 money supply is also above target.

For the most part, the equity indexes followed here rose on the week with the exception of the Japanese Nikkei and Hong Kong Hang Seng, both battered by investors. Both the Singapore and South Korean indexes fell also.

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