The recent 1/4% interest rate cuts by the Federal Open Market Committee of the Federal Reserve System are troubling to anyone who understands the world of Macro Economics. While interest rate cuts are popular with consumers, their real purpose is to prop up a failing economy. The theory is simple: rates are reduced to encourage businesses take advantage of lower financing costs to build plants, add worker shifts, hire more employees (job creation) and generally expand their operations. The problem is: the tariffs are increasing the cost of everything. Either the product, its components or its packaging are imported and importing is causing price increases. When prices increase, consumer purchasing power decreases–people can’t afford to buy as much as they could before the tariff-induced prices “inflated”. Under those circumstances, businesses cannot sell as much as they could before the tariffs and their warehouses overflow with unsold product. Ask yourself” WHAT BUSINESS PERSON WOULD EXPAND THEIR BUSINESS JUST BECAUSE OF AN INTEREST RATE CUT–WHEN THEY ALREADY HAVE WAREHOUSES OVERFLOWING WITH UNSOLD GOODS? Chairman Powell of the Federal Open Market Committee knows that answer all too well. So, our conclusion is that he has succumbed to the Trump threat of “cut rates or be fired” next year. Self-preservation kicks in and we have rate cuts. But are you–and is the US economy–better off because of the cuts? Notice how the cost of holiday food and gifts have changed and then decide whether tariffs are a positive to your budget.
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