That Sinking Feeling
America s Federal Reserve has cut interest rates for the eleventh time this year and for the first time since the economy was officially declared to be in recession. But in spite of the sharp fall in interest rates, some of the current optimism that a swift and strong recovery is under way may be overdone.
They are certainly trying hard. When the Federal Reserve—America's central bank—announced an interest-rate cut of one quarter of a percentage-point on December 11, it marked the eleventh reduction since the beginning of the year. The federal-funds target rate, America's basic interest rate from which all others are set, is now at 1.75%, down from 6% in January. Interest rates have fallen far more steeply than during the last American recession a decade ago: indeed, in nominal terms, interest rates are now at their lowest for more than 40 years. Yet the accumulation of grim economic news still outweighs the few more encouraging signs. Despite what some say, a short and sharp, or V-shaped, recession is not a racing certainty.
It was only last month that the official arbiter of American business cycles, the Business Cycle Dating Committee of the National Bureau of Economic Research, pronounced that the economy was in recession, and had been so since March. November also saw confirmation that in the third quarter of this year, for the first time since 1993, gross domestic product contracted. The economy shrunk at an annualized rate of 1.1%.
The picture is confusing, encouraging some at least to hope that the bad news will be only temporary. There are plenty of optimists who argue that the economy is already at a turning point, and that recovery is about to start. Some Wall Street forecasters are even bullish enough to say the pick-up could already be under way. Share prices have recovered their post-September 11 losses, and the Dow Jones Industrial Average briefly broke back through the 10 000 barrier this month.
It is difficult to justify such extreme optimism, even though the picture is undoubtedly mixed and there is some good news as well as bad. In its statement accompanying the rate cut, the Fed described signs that weakness in demand might be abating as preliminary and tentative. Although on some measures consumers have turned out to be less daunted than expected by the terrorist attacks, there are good reasons to expect consumption—which accounts for about two thirds of the American economy—to weaken. Retail sales in October grew by a spectacular 7.1% in value terms compared with September. But that largely reflected recovery from September's very weak performance, coupled with zero-financing deals being offered on new cars in an attempt to get shoppers back into the showrooms. Such deals are not sustainable in the longer term, and would anyway bring diminishing returns—sales generated now from discounts are probably simply stealing revenue from future months.
Unemployment, meanwhile, is rising fast and reached 5.7% in November, according to figures published on December 7. It probably has further to go. Corporate profits are taking a hammering, which seems likely to feed through both into consumer confidence and actual spending patterns. But even here there have been recent signs of an improvement in some sectors, with the high-tech giant Cisco recently reporting better-than-expected numbers. Inventories continue to fall, more steeply than at any time in the past 50 years. But once re-stocking starts, the impact on GDP will be positive.
The sharpness of the downturn which has taken place so far is illustrated by the very large revisions to forecasts, both for this year and next. The Economist's poll of private forecasters shows the average prediction is for growth next year of 0.6%, down from 2.6% in September (before the terrorist attacks). In June, the Organisation for Economic Co-operation and Development (OECD) expected America to grow by 3.1% in 2002; now it reckons on 0.7%.
But from the start, the Fed has responded aggressively. Its powerful chairman, Alan Greenspan, first demonstrated the extent of his concern by persuading his colleagues to cut interest rates on January 3, in between regular meetings of the Fed's main policymaking body, the Federal Open Market Committee. There have been two subsequent inter-meeting cuts, as the Fed tried to respond quickly to the growing evidence of recession and, on September 17, to steady nerves when the New York Stock Exchange re-opened after the terrorist attacks. As interest rates approach zero, the Fed's ability to influence activity through the manipulation of short-term interest rates is diminishing, though some economists believe it could start to do more to influence medium and longer-term rates.
Current conventional wisdom argues that monetary policy is more useful and more flexible for short-term macroeconomic management. But there has also been some fiscal easing this year, first from President George Bush's tax-cut plan, which included tax rebates sent to taxpayers over the summer, and then from the extra spending approved by Congress in response to the war on terrorism. There is still the chance of a further stimulus packa9e of $100 billion, although this is currently stuck in Congress as the Democrats and the Republicans bicker about what the package should include. Mr. Bush wants it on his desk ready for signature before Christmas. To meet that deadline, both sides will have to make big compromises, and soon. It is not clear that they will.
An agreed package might boost confidence; it will not, though, have much direct impact on economic activity in the short term and so is unlikely to be a major factor in accelerating the recovery. Nor can America look to the rest of the world for help in kick starting its sluggish economy. Since America started sliding towards recession, the global environment has deteriorated sharply. Europe's performance is lackluster at best, and Germany could turn out to have a recession nearly as bad as America's. Japan's problems are now so bad— the country is in its third recession in less than a decade—that its economy is expected to continue shrinking next year. Many East Asian countries are themselves reeling from the American-led high-tech slowdown. In sum, the world economy is in the midst of the worst slowdown since the mid-1970s.
Some sense of perspective is important though. Although the short-term outlook for America is, at best, disappointing, it is important to remember that the slowdown followed a period of spectacular growth, the longest peacetime expansion in American history. Although in contrast to the late 1990s the downturn has come as a big shock- and the much-vaunted soft landing has proved elusive—this is, as yet, one of the mildest recessions America has experienced. That is one reason why some economists think it has longer to run. But there is, so far, little to support the fears, advanced by some, that following the stock market bubble and investment boom of the late 1 990s, America is heading for a Japanese-style deflationary cycle from which, like Japan, it could take years to emerge. That really would be grim news, not only for America but for the world. And yet America's economy and political system is more resilient, and flexible, than Japan's and this should help it to avoid Japan's fate. By comparison with a Japanese-style malaise, even a traditionally painful, but finite, recession would seem like a lucky escape.
Reading aids and expressions:
1. The federal-funds target rate, America’s basic interest rate from which all others are set, is now at 5.75%, down from 6% in January.
在此句中
1) The federal-funds target rate is now at 5.75%, down from 6% in January是主句
2) America’s basic interest rate from which all others are set是同位语，说明其前面的名词target rate的性质，其中的from which all others are set是个限制性定语从句，修饰名词interest rate
2. It was only last month that the official arbiter of American business cycles, the Business Cycle Dating Committee of the National Bureau of Economic Research, pronounced that the economy was in recession, and had been so since March.
1) 这个句子采用的是强调句型it was … that,强调时间状语“only last month”。
2) 在此句的其它部分，
I. the official arbiter of American business cycles pronounced是主句
II. the Business Cycle Dating Committee of the National Bureau of Economic Research是同位语，说明arbiter of American business cycles 的性质
III. that the economy was in recession, and had been so since March是宾语从句，做pronounced 的宾语
3. There are plenty of optimists who argue that the economy is already at a turning point, and that recovery is about to start.
在此句中
1) There are plenty of optimists
2) who argue that the economy is already at a turning point, and that recovery is about to start是非限制性定语从句，修饰名词optimists，其中that the economy is already at a turning point, 和that recovery is about to start是两个并列的宾语从句，作argue的宾语
4. Although on some measures consumers have turned out to be less daunted than expected by the terrorist attacks, there are good reasons to expect consumption – which accounts for about two thirds of the American economy—to weaken.
在此句中
1) there are good reasons是主句
2) Although on some measures consumers have turned out to be less daunted than expected by the terrorist attacks 是让步状语从句，说明主句there are good reasons，动词不定式to expect consumption – which accounts for about two thirds of the American economy—to weaken作定语，修饰名词reasons，其中的which accounts for about two thirds of the American economy是非限制性定语从句，修饰名词consumption
5. Such deals are not sustainable in the longer term, and would anyway bring diminishing returns – sales generated now from discounts are probably simply stealing revenue from future months.
1) 这是个并列句，分句Such deals are not sustainable in the longer term, and would anyway bring diminishing returns和sales generated now from discounts are probably simply stealing revenue from future months由破折号连接
2) 在第一个分句中，两个并列谓语are not sustainable in the longer term和 would anyway bring diminishing returns由并列连词and 连接
3) 在第二个分句中，过去分词generated now from discounts作定语，修饰名词sales
6. take a hammering
to be attacked or defeated very severely 受到冲击；受到攻击，e.g.
1）The businessmen’s nerves have taken a hammering lately, for the economy is in dire trouble.企业界人士最近精神上受到很大冲击，因为经济情况非常糟糕。
2）The city took a real hammering during the war.这座城市在战争期间受到了真正的攻击。
7. feed through
(of a new factor or development) have an effect on something 有影响，e.g.
1）The influence of Italian designer fashion feeds into sports fashion.意大利由设计师设计的时装开始影响到运动服装的式样。
2）The impact of the cut in interest rates has yet to feed through.削减利率的影响还有待关注
8. Its powerful chairman, Alan Greenspan, first demonstrated the extent of his concern by persuading his colleagues to cut interest rates on January 3, in between regular meetings of the Fed’s main policymaking body, the Federal Open Market Committee.
在此句中
1) Its powerful chairman是主语，Alan Greenspan是同位语，说明其前面的名词chairman 是谁
2) demonstrated the extent of his concern 是谓语动词和宾语
3) by persuading his colleagues to cut interest rates, on January 3和 in between regular meetings of the Fed’s main policymaking body, the Federal Open Market Committee是三个介词短语，都作状语，第一个说明谓语动词demonstrated发生的方式，后两个说明其发生的时间
4) the Federal Open Market Committee是同位语，说明其前面的名词policymaking body是谁
9. There have been two subsequent inter-meeting cuts, as the Fed tried to respond quickly to the growing evidence of recession and, on September 17, to steady nerves when the New York Stock Exchange re-opened after the terrorist attacks.
在此句中
1) There have been two subsequent inter-meeting cuts是主句
2) as the Fed tried to respond quickly to the growing evidence of recession and, on September 17, to steady nerves when the New York Stock Exchange re-opened after the terrorist attacks是原因状语从句，说明主句中的谓语动词have been，其中to respond quickly to the growing evidence of recession 和on September 17, to steady nerves是两个并列的动词不定式，作动词tried的宾语，在后一个动词不定式中，when the New York Stock Exchange re-opened after the terrorist attacks是个限制性的定语从句，修饰September 17
10. As interest rates approach zero, the Fed’s ability to influence activity through the manipulation of short-term interest rates is diminishing, though some economists believe it could start to do more to influence medium and long-term rates.
在此句中
1) the Fed’s ability to influence activity through the manipulation of short-term interest rates is diminishing是主句，其中的动词不定式to influence activity through the manipulation of short-term interest rates作定语，修饰名词ability
2) As interest rates approach zero是时间状语从句，说明主句中谓语动词is diminishing发生的时间
3) though some economists believe it could start to do more to influence medium and long-term rates是让步状语从句，同样说明主句中谓语动词is diminishing，其中的it could start to do more to influence medium and long-term rates是宾语从句，作动词believe的宾语
11. But there has also been some fiscal easing this year, first from President George Bush’s tax-cut plan, which included tax rebates sent to taxpayers over the summer, and then from the extra spending approved by Congress in response to the war on terrorism.
在此句中
1) But there has also been some fiscal easing this year是主句
2) first from President George Bush’s tax-cut plan, which included tax rebates sent to taxpayers over the summer和 then from the extra spending approved by Congress in response to the war on terrorism是两个介词短语，都修饰动名词easing。在第一个介词短语中，which included tax rebates sent to taxpayers over the summer是个非限制性定语从句，修饰名词plan；在第二个介词短语中，过去分词短语approved by Congress in response to the war on terrorism作定语，修饰动名词spending
12. monetary policy: 货币政策
olicy related to the money supply in circulation. In a complex economic system, in which saving and investment are carried out by different groups of people, money takes on a dynamic function in addition to serving as a medium of exchange. It becomes capable of influencing the size of the national income, the level of employment, the demand for both consumers’ goods and producers’ goods and therefore the volume of both saving and investment. The aims of monetary policy are (1) to try to maintain full employment, neither more nor less; (2) to keep inflation in check; and (3) to rectify an adverse balance of payments. Therefore, when there is less than full employment the aim is to stimulate demand and production and through that the demand for labor; when there is overfull employment and in consequence an inflationary situation the aim is to check demand and to try to keep prices stable. In the strict sense of the term monetary policy is carried out by monetary means – the traditional instruments of policy, namely bank rate, reserve ratio and open-market operations. Monetary policy differs from fiscal policy, which is carried out through government spending and taxation. Both seek to control the level of economic activity as measured by such factors as industrial production, employment, and prices.
13. fiscal policy: 财政政策
Federal taxation and spending policies designed to level out the business cycle and achieve full employment, price stability, and sustained growth in the economy. Fiscal policy basically follows the economic theory of the 20th-century English economist John Maynard Keynes that insufficient demand causes unemployment and excessive demand leads to inflation. It aims to stimulate demand and output in periods of business decline by increasing government purchase and cutting taxes, thereby releasing more disposable income into the spending stream, and to correct overexpansion by reversing the process. Working to balance these deliberate fiscal measures are the so-called built-in stabilizer, such as the progressive income tax and unemployment benefits, which automatically respond counter-cyclically. Fiscal policy is administered independently of monetary policy, buy which the Federal Reserve Board attempts to regulate economic activity by controlling the money supply. The goals of fiscal and monetary policy are the same, but Keynesians and Monetarists disagree as to which of the two approaches works best. At the basis of their differences are questions dealing with the velocity (turnover: the rate at which money changes hands in an economy周转率) of money and the effect of changes in the money supply on the equilibrium rate of interest (the rate at which money demand equals money supply)
14. There is still the chance of a further stimulus package of $100 billion, although this is currently stuck in Congress as the Democrats and the Republicans bicker about what the package should include.
在此句中
1) There is still the chance of a further stimulus package of $100 billion是主句
2) although this is currently stuck in Congress as the Democrats and the Republicans bicker about what the package should include 是个让步状语从句，说明主句中的谓语动词is，其中的 as the Democrats and the Republicans bicker about what the package should include是原因状语从句，说明谓语动词is stuck，原因状语从句中还有一个what引导的宾语从句what the package should include，作短语动词bicker about的宾语
15. Although in contrast to the late 1990s the downturn has come as a big shock – and （although）the much vaunted soft landing has proved elusive – this is, as yet, one of the mildest recessions America has experienced.
在此句中
1) this is, as yet, one of the mildest recessions 是主句
2) 限制性定语从句America has experienced修饰名词recessions
3) Although in contrast to the late 1990s the downturn has come as a big shock – and the much vaunted soft landing has proved elusive是让步状语从句，说明主句中的谓语动词is。实际上，这是两个由and连接的让步状语从句，只是后一个从句中的从属连词although被省略掉了
16. But there is, so far, little to support the fears, advanced by some, that following the stock market bubble and investment boom of the late 1990s, America is heading for a Japanese-style deflationary cycle from which, like Japan, it could take years to emerge.
在此句中
1) But there is, so far, little to support the fears是主句，动词不定式to support the fears修饰代词little
2) 过去分词短语advanced by some修饰名词fears
3) that following the stock market bubble and investment boom of the late 1990s, America is heading for a Japanese-style deflationary cycle from which, like Japan, it could take years to emerge是同位语从句，说明fears的内容，其中
I. 现在分词短语following the stock market bubble and investment boom of the late 1990s作状语，说明is heading for 发生的时间
II. from which, like Japan, it could take years to emerge是限制性定语从句，修饰名词cycle
Questions:
1. How are the interest rates of commercial banks set?
2. What is the official arbiter of business cycles in the United States?
3. How much did retail sales increase in October? What did it imply?
4. What is the author’s opinion about sales generated from discounts?
5. What kind of relationship exists between the change in inventory and growth in GDP?
6. What function does the Federal Open Market Committee serve?
7. Why does the article say that the Fed’s ability to influence economic activity through the manipulation of short-term interest rates is diminishing?
8. What does the “fiscal easing” refer to?
9. When the U.S. economy is in trouble, can it expect to get help from other nations to get out of recession?
10. What is a Japanese-style deflationary cycle?
11. Why would a traditional painful, but finite, recession seem like a lucky escape compared with a Japanese-style recession?
