Apr 6 in General discussion
Interest rate planning cut by the Fed - What is the impact on the economy ?
Since December last year, the Fed has signaled it would expected to cut its key interest rate by the equivalent to three quarter-point cuts, from the current range of 5.25 to 5.5 per cent. Up until March, markets were betting that policymakers would make more cuts as inflation remained and growth slowed.
What will be the impact of the interests rates cuts by the Fed on the economy ?
- Increased Borrowing and Spending: Lower interest rates make borrowing cheaper for businesses and consumers. This often leads to increased borrowing for investments in business expansion, such as equipment purchases or infrastructure improvements, and for consumer spending on big-ticket items like homes and cars. This boost in spending can stimulate economic growth.
- Stimulated Investment: Lower interest rates encourage businesses to invest more in projects that require borrowing. This can lead to increased capital spending, which can enhance productivity and innovation in the economy, ultimately driving long-term growth
- Housing Market Activity: Lower interest rates tend to reduce mortgage rates, making homeownership more affordable.
- Stock Market Response: Equity markets often respond positively to interest rate cuts, as lower rates can make stocks more attractive relative to fixed-income investments. This can lead to higher stock prices and increased investor confidence, which can further stimulate consumer spending and economic activity.
- Weakened Currency: Lower interest rates can lead to a decrease in the value of the currency as well.
- Impact on Savers: While borrowers benefit from lower interest rates, savers may see lower returns on their savings and investments, particularly in fixed-income assets like bonds and savings accounts.
I would be happy to read some of your thoughts about the subject.
Guillaume
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Interest rate planning cut by the Fed - What is the impact on the economy ?
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