When companies have already shown with their actions what they do with extra cash,
what can rate cuts do now besides making the "drug dose" even stronger?
In a situation where the economic outlook is practically nonexistent,
will cutting rates automatically fill the future with promise?
Or is it a case of cutting 25 basis points, and if that doesn’t work, cutting 50,
until companies finally decide to hire?
Corporate buybacks are hitting historic highs, yet the market’s main narrative is that rate cuts can save jobs why is that?
byu/AppropriateRefuse590 ininvesting
Posted by AppropriateRefuse590
5 Comments
In theory when money is cheaper companies tend to borrow and invest in growth.
As far as buy backs, that’s a completely separate issue and investment that companies make.
The two aren’t connected
You have to remember how split so many different industries are rn. Yes, AI and AI adjacent industries are doing well, but most other companies aren’t. This dramatically improves the average and the headline numbers while many non AI companies are doing very poorly.
The US economy has imploded each time in the past 25 years that rates hit a terminal peak over 5%. Companies are addicted to near 0% rates and the parabolic hike pushed up carrying costs on every single piece of inventory through the entire chain.
Cutting rates isn’t about inducing these mammoth public companies to invest, they all know that innovation is the key to survival, it’s about dropping the cost of capital so companies of all sizes aren’t bleeding profit through their revolving lines of credit and for carrying costs on inventory. It will induce investment, but if you’re looking at it strictly among public companies that impact is negligible.
Where rate cuts can really save or create jobs is on the individual income statement level. Borrowing at 3% rather than 6% on a house has massive downstream effects on consumer spending. The economy does better if consumers have more money to spend and mortgage refis and student loan adjustments for variable rate loans will put thousands or tens of thousands of dollars a year into peoples’ pockets. That’s where the job savings or growth comes from.
Furthermore, AI is driving massive capex spending, so it’s not like these companies are just doing buybacks and neglecting their core business.
Rate cuts aren’t going to stimulate job growth and buy backs are just a symptom of hyper financialization. Most consumer spending is coming from the top 10% and there’s only so much those people can consume everyone else is scraping just the basics. So the whole economy is stuck in a vicious cycle of no jobs because the total consumer market is oversaturated and the consumer market can’t grow because there’s no jobs. Income and wealth inequality has grown to the point that it has become toxic. It’s going to take something to break the logjam like FDR did with the new deal to break the vicious cycle of the great depression, but there’s no visionary leader like that on the horizon, so it’s just going to keep on cycling paying out buy back money to shareholders until the whole rotten mess implodes.
The economic outlook is promising. Are you watching CNBC or other cable financial experts? The housing market needs a boost, so the hope is that lower rates can boost housing starts and sales. AI answer: Lowering interest rates improves the job outlook because it makes borrowing cheaper, which encourages businesses to invest and expand, leading to increased hiring and job creation. Lower rates also make it more affordable for consumers to take out loans for major purchases like cars and homes, increasing demand for goods and services, and further stimulating economic activity and employment.