The Nasdaq Composite Index plunged to a 26-month low at midday Wednesday after U.S. Federal Reserve Chairman Alan Greenspan failed to give any indication whether the nation’s central banking entity would cut interest rates in the coming weeks.
The Nasdaq was down 64.04, or 2.9 percent, to 2,143.78.
Speaking before a congressional panel, Greenspan said that the current economic slowdown “has yet to run its full course,” blaming the market’s sluggish performance on efforts to cut back quickly on production in the face of falling sales and an excess of unsold goods in many companies’ inventories.
The Fed reduced interest rates by a full percentage point so far this year in an attempt to kickstart sagging economic indicators.
“Even after the policy actions we took in January, the risks continue skewed toward the economy’s remaining on a path inconsistent with satisfactory economic performance,” Greenspan told lawmakers on the House Financial Services Committee.
“Accordingly, to foster financial conditions conducive to the economy’s realizing its long-term strengths, the Federal Reserve has quickened the pace of adjustment of its policy,” he said.
Although the Fed chief’s comments signal that the central bank is prepared to act in order to prevent a recession, Wall Street was hoping to see a cut this week.
However, Greenspan said that while consumer confidence requires close scrutiny, the exceptional slowing in the economy in December was less evident in January and February, indicating to him that there is no need for an immediate interest rate cut.
“We have obviously specified implicitly that we prefer to act within our scheduled meetings,” said Greenspan. “But we have also shown over the years that when we perceive that actions are required between meetings, we have never hesitated to move.”
Fed policymakers are slated to meet on March 20th to discuss interest rates.
Economic Growth Slows
Meanwhile, a report released by the U.S. Department of Commerce Wednesday found that the nation’s economy in the fourth quarter of 2000 grew at its slowest pace in five years.
U.S. gross domestic product (GDP), which gauges the value of domestically produced goods and services, grew at a revised annual rate of 1.1 percent during the October-December quarter, the weakest quarterly performance since 1995, the agency said. The government initially had estimated that fourth quarter GDP rose 1.4 percent.
The corrected GDP figure also was half of the 2.2 percent recorded in the third quarter.
Among the biggest tech decliners at midday were chipmakers Elantec (Nasdaq: ELNT), which tumbled US$9.75, or 31.7 percent, to hit $20.94, and Altera (Nasdaq: ALTR), which fell 50 cents to $22.80.
Cisco Systems (Nasdaq: CSCO), which led the Nasdaq in trading volume at midday, was down 44 cents to $23.56. Fiber-optic product manufacturer JDS Uniphase (Nasdaq: JDSU) slipped as well, falling $2.62 to $25.19.
E-tail issues were also having a down day, with Internet giant Amazon.com (Nasdaq: AMZN) falling $1 to $10.75. Amazon said it was stepping into the online music download arena Wednesday, launching a music community that will allow users to transfer songs for free and make voluntary micropayments to artists.
Buy.com was trading at 44 cents, well off its 52-week high of $33. Wednesday, the beleaguered e-tailer announced that it is eliminating approximately 125 positions — more than half of its 230-person staff — in a bid to conserve cash.
The E-Commerce Times Index was down 3.09 percent at midday, with losses in eBay (Nasdaq: EBAY) and Webvan (Nasdaq: WBVN) offset by gains in Travelocity (Nasdaq: TVLV).