- The Washington Times - Tuesday, September 18, 2001

As the United States works to form an international coalition to battle terrorism, central banks around the world took measures yesterday to shore up the global economy. The Federal Reserve gave the market a sign of support by cutting its overnight bank lending rate half a percentage point to 3 percent, the lowest rate since February 1994, an hour before the markets opened. Meanwhile, the European Central Bank lowered its benchmark lending rate by half-a-point, to 3.75 percent, while the Bank of Canada, Sweden's Riksbank and the Swiss National Bank also eased monetary policy.
Still, the tone of the Fed's statement was somewhat somber. And, despite the Fed's supportive cut in rates, investors pushed stocks lower yesterday, the first day equity markets have opened in wake of the World Trade Center destruction. The Dow Jones Industrial Average suffered its largest-ever point drop in one day, closing Monday at 8921, its lowest level since December 1998. The Nasdaq and Standard & Poor's 500 Index fell 7 percent and 5 percent, respectively.
Some market players hoped a sense of nationalism would take hold of the U.S. equity market and underpin stocks. Such sentiment could have an impact on the market and economy. To some extent, investor and consumer psychology could be determinative factors affecting asset valuations and the economy's trajectory. Consumer confidence, for example, will be a key factor. But here, too, the outlook is sobering. But data for August was worse than many economists expected, with consumer confidence reaching an eight-year low and unemployment rising to 4.9 percent. The entertainment and media sectors were punished Monday, apparently because consumer confidence data reflects Americans may be ready to hunker down and cut spending.
Other sectors, though, have been materially affected by the Sept. 11 attacks on the World Trade Center and Pentagon, and it's difficult to imagine how investor optimism could counteract a substantive change in fundamentals. The White House has indicated that it will lend the airlines support, but the industry will have to shoulder some of the inevitable costs of increased security. The insurance industry, meanwhile, suffered heavy stock selling yesterday.
Still, there are winners. Telecom companies are expected to benefit from increased demand as teleconferencing increasingly replaces business travel, and defense and security corporations are also expected to find new demands. Also, many companies are demonstrating faith in their own firms by buying their own.
Indeed, after what transpired last Tuesday, the sheer fact that markets were up and running is a remarkable feat.

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