Wednesday, September 11, 2019
Trade Policy on Investment Decisions
Jerome Powell believes that investment decisions by companies throughout the country have been significantly effected by the China-U.S. trade predicament. It seems to have to companies holding back from investment decisions with the uncertainty regarding America's current trade policy. Expectations of a deal being made between the two countries is not high, and the Federal Reserve has implemented interest rate cuts with hope to counter the dwindling long term investment being made by companies. The Fed plans to do so again in coming months. With a seemingly endless trade war between China and the US, can the Fed continue to incite investment in order to keep the U.S. economy from falling into a recession?
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The Fed used the rate cut way too early and is going to run out of ammunition before the trade war is over. We will not see the full effect of the rate cuts for at least another year and by that time we will not be able to cut them any lower or else we would be lending money at a negative interest rate. Cash is king for the next 2 years.
ReplyDeleteI think businesses need to move their supply chains out of China. If US companies were less dependent on China for cheap labor and production they might be able to avoid the negative effects of the trade war. Instead of trying to endure the hardship take on cost of moving now to avoid continual pain in the future.
ReplyDeleteThe Federal reserve’s primary goal is to help maintain American economic growth, so the Fed needs to use its economic influence to incite domestic investment. Like the author notes, these economic measures need to be designed with the intention to compensate for the lack of current domestic investment. The Fed, though, should be more cautious in trying to incite investment because the economic influence that they use now may not be available in the future to combat the effects of the trade war.
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