Question from a reader:”Fed going to cut interest rates again like you said they might?”
My answer: I did mention that I thought the Fed might do another cut at least for the short term, didn’t I? Well, if you were one of my tax students you heard me say that or if you heard me muttering to myself as I walk down the streets. Any interest rate cuts may be of an undetermined amount and time frame to say the least. But to get back to the question:
Rumor has it that the Fed may cut interest rates to help spur the recovery in the economy at their next meeting. By the time you are reading this entry, they could very well have cut the interest rate (or not). This particular entry is being written Sunday night and won’t post till Monday so who knows how the Fed and the stock market will react. In any event, what does that mean overall to the average U.S. citizen?
For the short term, it may bring some relief in lowering interest rates for those of us who have some savings, some sort of employment and are struggling to make ends meet. For those already in the deep end of debt, it may be somewhat helpful but if you are already overboard in owing money, it may not manage that much.
For banks, that will lower the rate that they can lend money between themselves and for the longer haul it may springboard some business and investing – provided we can get banks to start lending money again and not plunk all of it overseas in investing. You can be sure that President Obama is doing what he can with his advisors to figure out how to get things going and getting cash back invested and circulated in our nation. You can expect news also coming from the Treasury to be reviewed very closely by his team as well.
What about our interest rate?
The interest rate can go all the way down to zero and if it does, all that means is that the prime rate that banks will lend to consumers – their very best credit worthy ones or people who have contracts like Helocs tied to prime rate – will be 3%.
Three percent is a good interest rate to borrow money at if you are working and can repay it. If you can’t repay the debt the interest rate could be zero and it won’t help you either get money or help you repay it. The Fed is looking at other tools to get the economy going. Hopefully there will be some sort of business stimulus loans put into places as well as the infrastructure expenditures. That would help small firms get going and back on their feets and in turn, get more money circulating in local economies.
I would expect that there will be between now and the President-elect’s inauguration a pop in the stock market and some sort of mild bounce back from all the short selling, if nothing else. In terms of the overall economy, like you, I have a general feeling that it will take some time till things get recovered. As for how long the time period – months, years or decades, that will be seen only in hindsight by historians long after it is over.
Usual business rules of engagement should apply – keep saving, watch your spending and try to keep some sort of income stream going. Since none of us know when the end will be, we need to just be prepared and ready to actually live through this.
Cheer up, it could be worse and based on what the President-elect is saying, it might very well be so for now, try to enjoy the holidays as best as you can.
Stay healthy!
By the way, if you need some ideas for making extra money and working extra jobs, please check out my book linked below. A part of all book sales goes to research a cure for Rett Syndrome. Rett’s affects a girl born every fifteen minutes on the planet. Boys generally die of Rett Syndrome at birth.
Kim Isaac Greenblatt
More interest rate cuts or not?