seal  Purdue News

June 23, 2003

Economist: We don't need another rate cut

While the Federal Reserve Board is widely predicted to cut interest rates again on Wednesday (6/25), a Krannert School of Management economist says the cut isn't needed.

"Interest rates are so low now, I can't see firms foregoing equipment investment for that reason," says Gerald J. Lynch, a professor of management and associate dean at the Krannert School.

While Lynch allows that another Fed rate cut probably won't hurt, "possibly the only way it could really help the economy would be to inspire another round of home mortgage refinancings that would lower payments and free up income for consumption.

"The real problem is we still have excess industrial capacity," Lynch says. "In fact, we're at a 20-year low. Until we use that up, the economy really isn't going to start growing strongly.

"The excess capacity is slowly starting to get used up," he says. "We're moving in the right direction." CONTACT: Lynch, (765) 494-4388,