STEVE INSKEEP, host:
Today, the Federal Reserve is expected to announce that it's cutting rates, again. Last week, the Fed lowered its key federal funds rate by three quarters of a percentage point.
To discuss what's on central banker's minds now, we turn to David Wessel, economics editor of the Wall Street Journal.
Welcome once again, David.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning.
INSKEEP: Anybody worried about cutting interest rates twice in a space of a week?
Mr. WESSEL: Well, probably a few people are, but it doesn't seem to be a problem. The Fed is looking at an economy which is doing worse than it had anticipated. It sees the risk that this credit crunch, the inability or the changing terms of getting credit, intensifying, spreading across the economy. That's why they moved interest rates in a surprise last week. And that's probably why they're going to do it again today.
INSKEEP: Well, let's talk about how much the Fed focuses on up or down movements in the stock market because the Fed, traditionally, is supposed to be looking at long-term factors like inflation.
How much are they watching the tickers go up and down?
Mr. WESSEL: Well, that's a really pertinent question because last week, of course, on a holiday, Federal Reserve Chairman Ben Bernanke saw markets around the world sinking, was apparently concerned that the market in the U.S. would sink as well when it opened, convened an emergency meeting and they did this dramatic three quarter percentage point cut in rates. That has spurred a lot of criticism of Mr. Bernanke, that he's being led around by the markets, or too quick to respond by the markets. And it was even more embarrassing when it later developed that maybe one reason the markets were weak was not generalized angst about the world economy but because this big French bank was unwinding some trades that a 31-year-old trader had did.
The Fed says not so - that, of course, they watch the markets but they were already on the verge of easing and it was just the timing - the markets helped with the timing. But it does - it is a little unseemly and I think it's hurt Mr. Bernanke's public standing a little bit.
INSKEEP: Why does it matter what people say about him?
Mr. WESSEL: Well, that's a good question. I guess, ultimately, it doesn't matter what people say about the Fed chairman. What matters is that you move interest rates the right way at the right time. But a lot of central banking is looking like you're knowing what you're doing. They call it, in the trade, credibility. And the concern is that if you appear to be bailing out the market, then the market will begin to expect you to bail it out and there'll be all this pressure to do things that you might not want to do. One of the reasons the Fed is so important is it gives investors and consumers and business executives the confidence that some smart grown-up is sitting there at the controls. And anything the Fed does to weaken that impression hurts the economy and limits the effectiveness of their interest rate move.
INSKEEP: Okay. So in this game, it's all about perception and expectations. What are the Fed's options today?
Mr. WESSEL: It's not all about perceptions. Just partly about perceptions.
INSKEEP: Okay.
Mr. WESSEL: The Fed is most likely to cut interest rates by 0.50 percentage point, the market says. There are some people who think they'll only do a quarter, and we'll see this afternoon.
INSKEEP: And is the Fed thinking much about what Congress and the president might do to boost the economy?
Mr. WESSEL: Yes. When the Fed looks at the economy, they have to take into account the fact that the president and Congress are about to add about 150 billion or more worth of stimulus. From the body language, it appears that despite that, which they and Mr. Bernanke has enforced the stimulus, they still think that the Fed could use - I'm sorry - they still think that the economy could use another dose of that fiscal - of that interest rate adrenalin.
INSKEEP: Very briefly, David. How does it affect things that European Central Bankers are not slashing interest rates?
Mr. WESSEL: That's two things. One is it tends to push the dollar down because markets like to take the - take their money to places where interest rates are higher, and it means that Europe will be a little slower than it would be and we could use them buying some exports. My anticipation is, eventually, the European Central Bank will capitulate and do the same thing as the Fed, maybe does not as much.
INSKEEP: David, thanks very much.
Mr. WESSEL: A pleasure.
INSKEEP: David Wessel is economics editor at the Wall Street Journal. He speaks to us on this day, when we are awaiting to find out what the Federal Reserve will do. It is widely expected to cut interest rates for the second time in a week.