Federal Reserve Cuts Rate

Hi Friends,

As was predicted by the overall markets, the Federal Reserve cut the fed funds interest rate by 0.25%, to a rate of 1.50% - 1.75%.

The rationale for the rate decrease was “global factors” which really means other countries interest rates are lower than the US and they see weakness in the global economy that could impact the US economy.

Personally, I do not feel rate cuts are wise at the moment. The economy is strong, GDP grew by 1.9% (annualized) last quarter, inflation is at a good level, unemployment is low, etc. By lowering interest rates when things are going well, it will give fewer tools for the Fed to counteract the next recession, making it worse that it could have been otherwise. Interest rates are already still below their historical norms, and the fed has not reversed many of its quantitative easing programs, so the next market correction could hurt more than most.

With the US government running $1 trillion deficits and the national debt at $20+ trillion, there are real issues that need to be overcome in the future which could lead to a market collapse.

As it stands right now, the S&P 500 is hitting new all-time highs nearly every day so lowering the federal funds rate in this environment does not seem prudent.

What is your take?

Thank you for coming by today,

Brian