An Analysis Of The 2001 Recession

11 Pages 2630 Words

ns, however, have been noted to last for an average of between eight to eleven months. It is also noted that around the time when the Federal Reserve ratcheted up interest rates during 1999 and 2000 the economy noticed a slowdown. In addition to this, however, several other factors have contributed to the 2001-2002 recession. Factors such as the erosion of consumer confidence, rising energy prices, and stock market instability, as well as the effects of the terrorist attacks of September 11th 2001, and technological change and productivity can also be viewed when discussing the causes that led to the recession.
With talks of a recession prevalent in the air by March 2001, consumer confidence became further eroded. Furthermore, even before the recession, the stock market was down since the beginning of the year 2000, thus reducing the ability and/or willingness of investors and the holders of company stock to participate in the ongoing credit expansion. When the United States stocks resumed trading after a four-day close due to the September 11th 2001 terrorist attacks, the stocks were sharply lower in the first hour of trading. This delicate state of the stock market added to the erosion of consumer confidence and therefore hurt consumer spending. Consumer spending, however, fuels two-thirds of the United States economy. Boosting consumer confidence therefore is quintessential to the ending of the recession.
Upon sighting a major slowdown in 2001, Alan Greenspan, Chairman of the Federal Reserve, took action by trying to curb this slowdown through introducing a series of interest rates cuts. The first cut was a full percentage point. According to Greenspan, “economic growth was close to “stalling out”…” Because of this, the Federal Reserve was ready to continue cutting rates to enhance the economy and hopefully prevent it from falling into a recession. By May 2001, five tax cuts had already been undertaken, all in...