Rate reduction gets welcome from business

US business and industry leaders welcomed the Federal Reserve's decision to cut interest rates for the seventh time this year as a safeguard against a further slowdown.

They said they now looked forward to a recovery later this year.

"Combined with this year's tax rebates, the most recent rate cut is an insurance policy against further weakening in the economy," US Chamber of Commerce chief economist Martin Regalia said in a statement.

"As important as the rate cut itself, the Fed's decision to maintain its economic growth bias is a clear expression of its willingness to cut rates further if necessary to get the economy moving," Mr Regalia said.

US President George W. Bush's 11-year, $1.35-trillion (€1.48 trillion) tax-cut initiative is expected to inject $40 billion in tax rebates into people's pockets in the current quarter.

Federal Reserve interest rate cuts had so far staved off recession while failing to trigger a rebound, Mr Regalia said.

"With consumers continuing to spend, housing markets remaining strong and businesses drawing down inventories, the economy should be poised for a turnaround by the end of the year," he forecast.

A separate statement by the National Association of Manufacturers' president Mr Jerry Jasinowski welcomed the cut, but said it would have been happier with a reduction of 50 basis points.

"With manufacturing still facing challenges both at home and overseas, the Fed made a supportive move today that should prompt a recovery in the fourth quarter," he said.

Most of the economy had avoided recession but manufacturing output fell 4.8 per cent since September last year and 837,000 jobs had been lost, Mr Jasinowski said.

"While some of the causes of the manufacturing recession such as the inventory overhang and a spike in energy costs appear to have been reversed, clear signs of a recovery have yet to appear," he added.

The latest interest rate cut should also help to bear down on the value of the dollar, Mr Jasinowski said.

"This should, along with stronger growth overseas in 2002, set the stage for a manufacturing recovery starting in the fourth quarter and accelerating in 2002."