First Miami's James Klotz on Fed Rate Cut: U.S. Bonds Comment

By Darrell Preston
08/21/01 15:31

Boca Raton, Florida, August 21 (Bloomberg) -- Comments by James Klotz, president of FMSbonds.com, a municipal bond web site operated by FMS Inc. in Boca Raton, Florida, on the Federal Open Market Committee's decision to cut the overnight bank lending rate a quarter of a percentage point to 3.5 percent.

Klotz isn't optimistic about the Federal Open Market Committee's decision, nor does he think it was enough.

"I don't expect it to be effective," said Klotz.

Klotz expects it to take at least 18 months for the rate cuts that began in January to revive the economy.

"The top economists all expected an economic recovery four to six months ago after the easing began," he said.

"You can cut rates all you want and if people don't loan money or people don't borrow money, it won't stimulate the economy," said Klotz. "The stimulus isn't going to be there if the demand for the money isn't there."

He expects another quarter point cut in October, and said that while more is needed, Federal Reserve Open Market Committee Chairman Alan Greenspan must go slow in cutting rates.

"The only reason it wasn't cut to 3 percent now was because if it doesn't work right away, the Fed will appear to be impotent," said Klotz.

 

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