“Despite six interest rate cuts by the Federal Reserve this year and the possibility of more to come, analysts say that monetary policy is packing less of a punch so far than expected,” writes Richard Stevenson in today’s New York Times.

“The Fed’s rate reductions work to the degree that they ripple through the banking system and the financial markets into the economy. And in this business cycle the three main vehicles through which lower rates affect business, investor and consumer behavior — the stock, bond and currency markets — have remained persistently unresponsive to the Fed’s actions.”

“All year long, economists have predicted that the central bank’s rate cuts would ultimately kick in with something like their usual force, stimulating a recovery from the economic slowdown. But one factor after another has conspired to dampen or delay the effects of the looser monetary policy on the markets and the economy.”

” ‘Monetary policy has a major problem in reviving the economy by itself in the year ahead,’ said David Hale, chief economist for the Zurich Group. ‘The best the Fed can do for us is a modest growth rate. To do better, the technology recession has got to end.’ Disappointing corporate earnings reports have kept stock prices in check all year, and only seem to have grown worse in recent weeks. Worries that inflation might make a comeback next year, and growing concern that the federal government might not be able to pay off as much of its debt as projected, have kept long- term interest rates in the bond market from falling below where they were when the Fed began cutting rates in January.”

“Increasing evidence over the last few months that global economic growth has slowed has pushed up the value of the dollar — the opposite of what normally happens when the Fed is cutting rates — making life harder for American exporters and multinational companies.”

“The potency of monetary policy is also being diluted by the nature of the slowdown, economists said.”

“The most powerful brake on the economy right now is not the portion of the economy sensitive to lower interest rates — industries like housing, and consumer spending generally — but the steep decline in spending by businesses on new factories, computers, telecommunications equipment and other capital goods.”