Why Lower Interest Rates Matter Advisors Financial Center, LLC Montebello Park 75 Montebello Road Suffern, New York 10901 (Tel) (845) 368-0938
NOVEMBER 8 -- Many people seem to wonder if the latest interest rate reduction by the Federal Reserve will help the economy when 11 prior cuts have not.
And they worry that the Fed knows something bad about the economy that the public does not know. In fact, the Fed gets the same data available to the public and past interest rate cuts have helped quite a bit. Therefore, the latest should provide some additional impetus to growth.
The notion that past rate cuts haven't helped requires that all other factors be ignored. We know that households have been on a refinancing boom, lowering their monthly mortgage payments or taking out cash to finance spending. This has been a great benefit to customers, who have been able to increase spending throughout the recession and to help support the economy in the recovery.
Lower interest rates will now force consumers and business to take more risk, since the return earned on safe investments, such as bank deposits, money market funds, or Treasury securities has fallen to very low levels.
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