Lower interest rates encourage consumer and business spending by reducing borrowing costs. Most analysts expect the Fed to drop its rate to 4.0 percent, though some said that the Fed might go only to 4.25 percent in light of the positive GDP report today. Treasury Secretary Paul O'Neill described the report as good news. It's hilarious to see no matter what the number may be, there are those who will find something wrong with it. O'Neill will discuss the slowing global economy today at a meeting in Washington with his counterparts from Germany, the United Kingdom, France, Italy, Japan and Canada.
Economists remain divided on the course of the economy.
Pessimists warned that falling corporate profits and mounting layoffs presage a further slowing of the economy in the coming months and a continued recession risk. Optimists said the economy was now on the path to recovery. A fairly steady erosion in consumer confidence continued today, with the University of Michigan index of consumer sentiment falling from 91.5 in March to 88.4 for April. This report doesn't alleviate those risks. The divergent opinions reflect a mix of positive and negative data about current economic conditions.