Posted on 08/17/2019 7:50:23 AM PDT by Kaslin
Much has been written about the need for the Federal Reserve to lower interest rates, even beyond the July cut, the first one in eleven years. Indeed, the latest escalation of trade tensions with China and its concomitant currency depreciation might make further cuts more compelling. Or not. The principal purpose of a rate cut is to provide liquidity to foster greater consumption and business investment that stimulate economic growth in the face of sustained opposition forces. But rate cuts without sufficient justification, such as those based on transitory developments, reaction to presidential jawboning, miming other central banks, or inadequate consideration of market fundamentals can thwart economic progress.
The Case for Rate Reduction
The sentiment for Fed rate reduction is predicated primarily on suppressed demand resulting from slow global economic growth and uncertainty about U.S.-China trade policy, exacerbated by sudden contagion concerns over China’s recent currency weakening. Technical factors, such as an inverted yield curve, negative interest rates in Europe and Japan, and a seeming tendency to coordinate rate policy with other central banks, also underpin support for lower rates in the U.S. In fact, current interest-rate futures markets suggest the likelihood of two more rate cuts this year.
The latest Fed guidance that prompted last month’s rate cut expresses an interest in pre-empting recession rather than reacting to it. Also factoring into monetary dovishness is the Fed’s aversion to roiling the stock market that is very sensitive to interest-rate movements. And one wonders if the Fed fears Trump’s wrath over what he thinks are excessively high rates that suppress growth, especially as the 2020 election approaches. The danger of the Fed’s lack of independence may be illustrated by Fed chairman Arthur Burns’ alleged complicity in opening the monetary spigot to accommodate President Nixon’s reelection in 1972.
(Excerpt) Read more at americanthinker.com ...
Rates should be cut because the Fed is manipulating them to be much higher than what the market would charge based on their false premise that economic growth causes inflation.
If a person believes more in free markets than elite academics seeking to please the Swamp, then he should be for the rate to be cut to the market level.
They cut rates once and it’s a fever? Media is insane!!!!
What does Barry ZIRP have to say?
LOCK HIM UP.
Economic growth can lead to more competition for workers and for materials which may lead to increased prices for wages and resources. The increased prices will lead to inflation. Then, the interest rates will need to be raised to slow down the economy in order to prevent inflation from happening. Economic growth does lead to inflation. It is a normal part of the business cycle.
Yes, that is true. And during that period there were several “easings” of monetary policy that were not “rate cuts”. Each the QE iterations were easings, and so the continual rehash that this is the first cut in a decade is technically accurate but essentially wrong.
I do have to defend the Fed on one point as far as the rate hike in December goes. They had no real way of knowing at that time that Trump intended to destroy confidence in the global economy the way he did with his tariffs.
Had they really known he would carry through with that, they would have known how devastating it would be to economic activity, and probably would have refrained.
Now of course they’re bound to ease more in response to the dismal outcomes of the stupidity from Trump.
Troll, troll, troll your boat....
I find a lot of interesting ideas in the Austrian model, which suggests other reasons for inflation. One is that inflation is really caused by governmental devaluing or debasing of the currency.
Market based price increases are not inflation.
Then, the interest rates will need to be raised to slow down the economy in order to prevent inflation from happening.
The proper response is to let the market adjust, not the elites manipulating the market. Slightly higher prices in the short term are not a problem when people are making more money.
I do have to defend the Fed on one point as far as the rate hike in December goes. They had no real way of knowing at that time that Trump intended to destroy confidence in the global economy the way he did with his tariffs.
...
Nobody should believe the Fake News or you when it comes to what’s destroying confidence in the global economy.
One is that inflation is really caused by governmental devaluing or debasing of the currency.
...
That’s mostly true. Pumping money to stimulate an economy in recession devalues the currency. The way to prevent this is not to allow the Federal Reserve to put the economy in recession with interest rates manipulated to be higher than what the market would charge, which they justify with their false premise that economic growth causes inflation.
Rates are already extremely low and the economy is better then its been in many years. Jobs for just about anyone willing to work, too.
You have to monetize the debt you know to keep the ponzi scheme going you know.
We already have a giant stimulation via .gov spending. Lower rates ensures .gov will continue to spend. This economy has been very unhealthy for decades. Lower rates ensures more .gov spending and makes it ‘easier’ for them. The death of savers continues.
Yea, that’s the other part. Too much government is what leads to the devaluing and debasing. Part of what turned me into a classic libertarian/anarchist. With a twisted constitutionalist conservative bend. LOL.
Give me 0% auto financing and I may buy a new car. Will that help the economy?
Why don’t you buy Argentine bonds?
They are under IMF restriction and not allowed to run a deficit.
Their ten year bond is yielding 25%.
http://www.worldgovernmentbonds.com/country/argentina/
Check out those Argentine bonds. They aren’t allowed to run a deficit.
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