5 June 2001, 14:58 U.S. rate cuts unlikely to boost business investment: JP Morgan's Warner
SINGAPORE (AFX-ASIA) - Further cuts in interest rates are unlikely
to boost U.S. business investment and will probably have more of an
impact on consumer spending, JP Morgan Chase & Co chairman Douglas
Warner said.
Speaking after the International Monetary Conference, Warner said
the U.S. market is going through a consolidation phase.
He said capital investment over recent years has been higher than
what the economy actually needs going forward.
"We need to consolidate around years of very substantial business
investment.
"There's almost no amount of interest rate reduction that will
encourage someone when they have too much (credit) to put yet more on
the ground."
Asked if there are any signs business demand for credit will pick
up in the short-term, he said: "I don't think so, no."
He said once the market has adjusted to the consolidation phase, he
sees a "pretty healthy situation ... It's not without risks but it's
our best guess for now."
The correction in the level of business investment, which coincides
with continued cuts in U.S. interest rates and proposed tax rate
reductions, makes for a "tricky period.
"Actions taken in the monetary arena ... will have an impact
particularly on the consumer while the rest of the correction
continues," he said.
He said it is important that the "shock" of corporate earnings
warnings and job cuts does not translate into a fall in consumer
confidence.
"Fortunately (at the moment) the consumer in the U.S. is continuing
to perform pretty well, spending and his confidence is still at a
pretty high level," he said.
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