what do you think about the latest Fed rate cut?

Rate cuts generally means the economy is doing poorly and/or slowing. It also weakens the currently weakened US dollar. Despite trump bolstering this is the best economy in the history of the world, him demanding constant rate cuts is contradictory.

Since you asked for my .02…

Montetary policy is set by the Fed. That means they control the amount of dollars in circulation in the banking system.

Politics aside, the fact is, there has been a tremendous amount of dollars injected into the economy done the pandemic.

We see this. This is why a top end Toyota Tacoma costs $70,000 and why house prices are higher. It takes more dollars to buy the same stuff. The value of a Tacoma didn’t go up, the house value didn’t rise *that* much, it simply takes more dollars to buy the same stuff as before. This is inflation. This is the core of affordability.

Inflation RATE is the rate prices change. The Fed targets that at about 2%.

The Fed implements their monetary policy by setting a rate at which banks borrow. They borrow money, poof, magically credited to banks account, and the bank re-lends it.

They also use auctions. If the interest rate is high, investors will buy bonds (t-bills, t notes, etc.) from the government. This literally takes dollars out of circulation. Dollars exchanged for bonds.

The Fed needs to keep a high interest rate to soak up the excess dollars pumped into the economy. This addresses “affordability”

The Fed also needs to smooth out the business cycle. When the economy falters, the government can help its constituents by reducing the interest rate to spur borrowing. People will borrow money to start a business or do whatever. This is NOT what they want for affordability. This puts MORE dollars into the economy, opposite of addressing affordability.

We are at a tough point. There is also a huge level of debt we need to make payments on. We really need to keep making them. The tax dollars we all pay in get replaced with bonds. Then the dollars go to service payments, interest, contracts, salaries.

So reducing the Fed funds rate, the rate banks borrow at, helps inn the short term for the economy, but is bad for the austerity measures we need to take.

We binged. We have a hangover. Rate cuts are “hair of the dog”. We are alcoholics so while it helps now, long term more alcohol isn’t the answer for an alcoholic.

Powell basically said there would be some injections of liquidity. That’s bigger than the rate cut. I expect to see some spikes because of the cash. But I doubt the prices will hold for long.

He stated that both jobs and inflation were both at similar risk levels, so he’s focused on trying to balance the two. In my mind, he’s walking a tight rope.