Since last year, European and Asian export business has dwindled severely. The United States absorbs a quarter of the world’s exports, and until last summer was the engine of global growth. So when Americans stopped buying, the rest of the world started struggling. Federal Reserve chairman Alan Greenspan’s decision to lower interest rates only minimally has given Asian and European exporters the hope for a rebound they needed.
Of course, there are no guarantees that the United States has overcome a recession. The smaller-than-expected interest-rate adjustment was a careful attempt to thread the monetary needle, and can be interpreted three ways. One scenario is that the Federal Reserve thinks the economy might soften further, and still sees America in the midst of the battle. A likely alternative is that Greenspan & Co. envision an upturn, and minimized the cut to prevent “irrational exuberance” and inflation as the country emerges triumphantly from its downturn. Lastly, the worst-case scenario: the quarter-point drop reserves as much ammo in the Fed’s monetary locker as possible. As Greenspan has repeatedly reminded associates, if he and the board are wrong about the economy–and if it takes another steep dive–huge additional interest-rate cuts will be necessary to halt the slide. “We can only cut interest rates to zero,” says Greenspan. “You want to preserve every single decimal of interest possible in case you have to fight a disaster.” For now, Asian and European exporters are still stuck sitting on their docks and looking for an answer to their all-consuming question: is Alan Greenspan an optimist?
