Some months ago, the prospect of an interest rate cut was enough to stir hopes in California's Silicon Valley of a halt in the downward spiral of the US economy. But today, after five cuts in five months, there is scepticism here that another reduction will make any immediate difference.
As the Federal Reserve in Washington prepares to announce an expected further quarter or half-point reduction in the base lending rate today, an exodus of laid-off tech workers is taking place from the North California Bay area where dozens of IT companies have closed down or laid off workers.
San Francisco's office vacancy rate has risen to its highest level since the recession of the 1990s, it was reported yesterday. Home prices in the San Jose area have dropped for the first time in several years. There is a three-month waiting-list for the hire of furniture vans as families move out.
Despite aggressive rate cuts totalling 2.5 basis points since January, designed to boost business spending, industrial production fell 0.8 per cent in May, the eighth consecutive monthly drop in output. This increases the odds that gross domestic product for the second quarter might fall, raising the prospect of a recession, defined by two quarters with negative growth. GDP rose an anaemic 1.3 per cent in the first quarter.
However, a leading barometer of consumer confidence nationwide rose for a second month in June as Americans became more optimistic about an economic recovery later in the year.
The two-day Federal Reserve meeting which began yesterday is expected to focus on the danger of inflation if the economy picks up, helped by tax-refund checks of up to $600 (#696) paid to American households in September under the Bush administration's tax reform. The Fed announcement is expected at 2.15 p.m. (Irish time 7.15 p.m.) today.
Meanwhile, Merrill Lynch said yesterday its second-quarter earnings would be as much as 37 per cent below expectations because revenues from stock- and debt-trading declined.
The Irish Times Breaking News service will carry the interest rate announcement from the US Federal Reserve tomorrow evening at: www.ireland.com
