Are The US Authorities About To Cut Their Interest Rates?
17 09 2007After a sustained period of rising interest rates to try and squeeze consumer demand, it looks as though the US Federal Reserve are about to back track on their recent strategy and introduce an interest rate cut to try and stimulate the economy and reduce the effects of the ongoing credit crunch. It is a major shift in policy but one which has been forced on them in reality. So what next?
If the latest rumours are correct this will be the first reduction in US interest rates for over 12 months, and should mark the top of the interest rate cycle. While a reduction in interest rates will assist the economy, there are also fears that it would introduce “cheap money” and feed the inflation monster again. The authorities are in a very difficult situation because if they keep rates high for too long, the economy may stall and fall into recession. However, if they reduce rates then they may well avert an imminent economic correction, but they would just be storing up problems for the future with a probable boom and bust scenario.
To be fair, the Federal Reserve have been fairly successful with their recent interest rate strategy, and had it not been for low grade mortgage sales by some of the sub prime mortgage providers, the economy would have been slowing at the moment, rather than having the potential to grind to a shuddering halt.
Will events in the US effect the direction of UK interest rates? Yes, so it is probably a good idea to keep an eye on developments in the US market over the days, weeks and months ahead.
Categories : Economy, Interest Rates, UK, US





