The Fed has cut the fed funds interest rate by 1/2 percent with more cuts forecast to follow.

This means that most likely mortgage rates and consumer loan rates will also fall and of course Money Market rates and CD rates will certainly fall too. No one knows for sure how far rates will fall and how fast. Personally I don't think they will fall as far and as fast as many seem to expect.

https://finance.yahoo.com/news...-2020-090036093.html

"The Federal Reserve slashed interest rates by a half percentage point Wednesday and charted a course for two additional cuts this year followed by four more in 2025.

The action marks the Fed’s first easing of monetary policy since 2020 and the termination of its most aggressive inflation-fighting campaign since the 1980s.

The decision came in a split vote at the conclusion of the Fed’s two-day policy meeting as officials cut the central bank’s benchmark rate by 50 basis points to a new range of 4.75%-5.0%.

Rates had previously been held at a 23-year high since July 2023.

There was some division on the final decision, with Fed governor Michelle Bowman dissenting. She preferred to cut rates by 25 basis points instead of 50.

No Fed official has voted against a policy decision in two years, matching one of the longest such streaks in the past half century. Moreover, no Fed governor has dissented on a rate decision since 2005.

The consensus among Fed officials at today’s meeting was that they now see two more 25 basis point cuts this year, followed by four more cuts next year and two more cuts in 2026."

This message has been edited. Last edited by: grumpy1,

How does making money cheaper help with inflation?

quote:

Originally posted by mod29:
How does making money cheaper help with inflation?

This is all about helping Kamala

Just as gasoline prices have been going down lately. Of course it works with the unobservant and uninformed or just plain ignorant.

They're excited inflation is only 2.6% but ignoring the nearly 20% that's already occurred the last 3.5 years when historically it would've been 7%. Most Americans definition of a healthy economy would be inflation below 0% because we need to claw back the last 3.5 years.

quote:

Originally posted by mod29:
How does making money cheaper help with inflation?

This only makes money cheaper (i.e., causes inflation, therefore same money buys less) if concurrently you PRINT more money. If you keep the same amount of money in circulation, lower interest rates makes it easier for people to borrow from the pool of money. Those people then spend or invest that money. Once spent it is the first step in economic prosperity (simplistically its not the amount of money that makes an economic system, it is the circulation of money in that system).

I want to know how much more interest the Federal Reserve collected since 2020, what those funds were used for, and who benefited and by how much from refinancing trillions in T-bills and Federal Reserve notes with higher interest paid to purchaser of said notes.

Gold
2,600.78 ▲ 29.59

Silver
31.23 ▲ 0.44

quote:

Originally posted by mod29:
How does making money cheaper help with inflation?

It doesn't. In fact, the Fed's traditional tool for curbing inflation is to raise interest rates, which it has been doing since the '80s.

You lower the Federal Funds rate to encourage business, but at the danger of letting inflation go unchecked. I wonder why they suddenly chose now to do it. Prices are crazy high, though not necessarily due to inflation.

I'll have to read up on their reasoning, see what I come up with.

quote:

Originally posted by kkina:

quote:

Originally posted by mod29:
How does making money cheaper help with inflation?

It doesn't. In fact, the Fed's traditional tool for curbing inflation is to raise interest rates, which it has been doing since the '80s.

You lower the Federal Funds rate to encourage business, but at the danger of letting inflation go unchecked. That's great, but I wonder why they suddenly chose now to do it. Prices are crazy high, though not necessarily due to inflation.

I'll have to read up on their reasoning, see what I come up with.

The home market in many places has suddenly gone in the toilet. Even before that many new homes were being purchased by investors and turned into rental homes because first time buyers had been hit with both rising prices and rising interest rates.
Look up what both of those together have done to a first time or low equity buyer's monthly payment. Way way above the published rate of inflation.

It happens every time they need a Democrat to get elected...

OK, it seems the inflation rate is actually down, and the Fed chairman believes it is moving to a comfortable rate of 2%. Assuming an economy that is slowing (not everyone agrees), it may be the right time to stimulate the economy, though some feel that a half percent is too aggressive, too soon.

quote:

Originally posted by Sig2340:

This only makes money cheaper (i.e., causes inflation, therefore same money buys less) if concurrently you PRINT more money.

This would be true if we didn’t have a fractional reserve banking system, but we do.

As an example of how money can be borrowed into existence (beyond the dollars created by being borrowed into existence when the Fed “prints” them):

Billy gets a $100,000.00 loan. He isn’t ready to invest it yet so he deposits it in the bank. The bank keeps 10% in reserve and turns around and loans $90,000 to Janey. Janey deposits $90,000 and the turns around and loans out another $81,000. Rinse and repeat. Ever wonder why it is a problem if people start showing up at the bank wanting to withdraw “their” money?

quote:

Originally posted by kkina:
OK, it seems the inflation rate is actually down, and the Fed chairman believes it is moving to a comfortable rate of 2%. Assuming an economy that is slowing (not everyone agrees), it may be the right time to stimulate the economy, though some feel that a half percent is too aggressive, too soon.

Didn't Joe and Kamala tell us over and over that the economy is strong as hell?

The economy is so great, it needs an crisis-level rate cut 2 months before the election...

We had a genuine increase in cost, to a large extent, not inflation.

Boomers are retiring, which means an ever decreasing work force and number of investors. (First time in history since the fall of Rome/probably the Black Death.)

At a minimum, if it can be survived, we need vastly lower capital costs, to try to spur automation.

And, much of Europe has much lower interest rates, without any run away inflation.

The first European country to switch to a pro-growth/pro-liberty model, will grab a lot of talent from the U.S, especially if they can show a sustainable/rising native birth rate. (One of the reasons I’m interested in Kazakhstan, aside from family, is that it is a, mostly, first world country*, with an increasing native population- admittedly, a small one which has just recovered from the Soviet massacres.).

*Similar to much of Europe. First world cities, and surprisingly primitive rural areas.

Peach, strawberry, vanilla and blueberry quality has all dropped significantly. Cocoa beans may have - costs have certainly jumped.

Some of that is instability, but much of it is simply a lack of ANYONE to harvest it.
(Farm labor is no longer poorly paid, but almost impossible to find/find people to even train to take up farm labor.)

The average age of a tradesman is…. In the 50s? I think. Again, very well paying jobs, but no one to take them.

The only thing I can see saving trades is if companies move to a subscription model, so they can stop building appliances/units to fail, and maybe some manner of telepresence service robots - which seems a long way off (maybe not the subscription idea. That’s really what people have, anyway.)

quote:

Originally posted by mod29:
How does making money cheaper help with inflation?

The Federal Reserve has a spotty record of managing the money supply via its policies such as interest rate with the aim of curbing inflation or spurring the economy.

Case in point was the 40-year record high inflation that we experienced. If the Fed was on the ball, they would have raised interest rates sooner to dampen down inflation; granted that would have been like bailing water out of a boat with the administration blowing holes in the hull below the waterline with its spending.

With signs of the economy slowing down, the Fed has to spur growth by lowering interest rates and increasing the money supply. But, it remains to be seen if this cut rate is soon enough to avoid a recession. There's conflicting views; I'm assuming the recession will happen. I've been waiting for it since last quarter of 2022.

The Fed is effective in curtailing inflation by raising interest rates; not so well in spurring the economy by lowering interest rates. This has been termed as pushing with a string.

quote:

We had a genuine increase in cost, to a large extent, not inflation.

That's an excellent point, which I also mentioned. I'm wondering how an over-valued economy would respond to a concurrent increase in the inflation rate. Would the effect be relative or cumulative?

quote:

There's conflicting views; I'm assuming the recession will happen.

Aren't most analysts saying that a recession is unlikely, (though that doesn't necessarily mean a strong economy)?

Interesting that wall street had a down day all around and even bonds were down a bit with the news. It seems that so far the interest rate cut of 1/2 percent has prompted worries of a recession or a significant slowing of the growth rate which is not good news for such high stock valuations. It will also be interesting to see where the yield curve goes from here as it has been out of whack for a record amount of time.

Recession is inevitable, with a collapsing workforce and capital pool.

A dramatic revamping of the workforce - currently, about half are in non-productive work (government workers, etc.) - would help, but we will need a sea change in productivity to keep going.