The Federal Reserve is under new pressure to lower U.S. interest rates now that foreign financial troubles are starting to spook Wall Street.
"Why not go ahead and cut interest rates and get us through this bump in the road with the stock market?" said Daniel Guido, spokesman for the House and Senate's Joint Economic Committee.The congressional panel's chairman, Rep. Jim Saxton, R-N.J., and the National Association of Manufacturers are among those calling for quick interest rate cuts after investors' worries about economic chaos in Asia and Russia dragged the Dow Jones industrial average down 512 points on Monday.
Even with a 288-point rebound Tuesday, the Dow had still given up all its profits for the year.
But despite the stock market jitters, some analysts note that the central bank has not traditionally changed interest rates in response to financial troubles abroad. And so far, the U.S. economy remains strong.
"There would have to be some substantial movement downward from here," said Daniel Bachman, an economist with the WEFA Group in Eddystone, Pa. "I don't think the market has fallen enough to constitute an emergency."
Competing domestic and international considerations have tugged at Fed policymakers for months, and it's still uncertain what the central bank's Open Market Committee will do when it next meets on Sept. 29.
"We think we have a basically sound strategy that has proven itself with respect to the real economy," said Deputy Treasury Secretary Larry Summers.
American factories have been among the first to feel effects of foreign financial crises. Demand for U.S. products overseas has gone down and imports have become cheaper and more attractive to American consumers.
The reduced profit prospects for many U.S. corporations have rattled the investor confidence.
On the flip side, labor shortages and climbing wages caused by the lowest U.S. unemployment rate since the 1960s could argue for an interest rate increase to ward off inflation.
For that very reason, the last time the Fed tinkered with interest rates - in March 1997 - it raised them a quarter percentage point, to 5.5 percent.
But so far inflation has failed to materialize. During the first half of this year, consumer prices grew at a 1.4 percent annual rate - slower than last year.
Lower interest rates can encourage spending by making short-term credit easier to get. Abroad, lower U.S. interest rates would give other countries a better chance of attracting foreign investment - including sorely needed dollars.