Becoming addicted to being able to acquire loans at an extremely low interest rate will inevitably end up hurting the US economy. But this is what President Trump continues to push for from the fed when he asks for interest rates to continue to go lower. The pain will start from the lenders whose margins continue to get more narrow as the loans are pushed out at lower rates. analysts are even predicting that rates could drop down to 0 in order to stimulate the economy again but all that cheap/ free money will be soaked up in the first 6-12 months and will eventually push us into a recession. What would you do if you were the Fed right now?
https://www.cnbc.com/2019/10/17/central-banks-cutting-interest-rates-to-zero-or-negative-bad-for-economy.html
With interest rates so low, the Fed should keep a close eye on inflation. The demand for real money balances right now, technically speaking, is high and there is more liquid cash circulating in the economy. The money supply should be kept on a tight leash to avoid rising inflation.
ReplyDeleteI think the Fed should avoid lowering interest rates any lower. The end of the business cycle is long over due so I think the Fed should allow one to naturally occur. The longer we go without one I think it will just be worse.
ReplyDeleteIf interest rates drop to 0 there either could be a massive rise in inflation due to consumer spending or the economy could slow. If banks are barley able to turn a profit there would be little incentive to lend money. Thus making it hard for consumers and businesses to get loans.
ReplyDeleteThis current situation with extremely low interest rates is reminiscent of the pre-2007 financial crisis conditions. It will be important to see how banks and lenders are financing their loans and whether or not their rates will be variable or locked in.
ReplyDeleteI would agree with the assumption that dropping interest rates any lower would be dangerous and put us at risk of another banking crisis.
ReplyDeleteIf interest rates go down to zero then the US is punishing those who save. I understand that having interest rates lower encourages consumers and businesses to invest, however, it hurts people who are saving. It also hurts people who have fixed income jobs who put money away in order to accumulate interest. The government needs to take into consideration the consequences-positive or negative- that a low interest rate will cause.
ReplyDeleteIf I were the Fed I would be thinking of the 2008 recession. This is pretty similar to what caused the last banking crisis and would not be wise to keep pushing for extremely low interest rates
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