Every stockholder has been paying close attention to the fed’s interest rate cuts this year. These cuts don’t just affect the economy short term but could have major consequences in the next recession. Learn more in this episode of USMR Market Insights with Coy Wells.
Could the Fed’s Current Moves Corner Them in a Recession? – Video Transcription
Coy Wells: 00:00
The federal reserve has reduced interest rates three times this year. They have labeled these moves as a normal occurrence even referring to them as a mid-cycle adjustment. Could the Fed's interest rate cuts leave them without weapons in the face of a recession? The fed first cut interest rates this year by 25 base points on July 31st, this was the first time they had cut interest rates since 2008. They then followed up with two more 25 base point cuts on September 18th and October 30th leaving the current interest rates at a range of about 1.75 to 2%. Cutting interest rates is a common tactic by central banks to fight a recession. This works because cutting interest rates makes it cheaper for businesses to allocate money into new ventures, thus encouraging spending. It was used previously by the fed to combat skittish economic activities after the 2008 financial crisis.
Coy Wells: 00:53
The problem is the more cuts they engage in now could limit future cuts. For example, in 2008 the fed cut interest rates down from 4.25% at the beginning of the year to 0-0.25% at the end of the year. This wasn't done all at once, but it was done through a series of cuts over the course of a year. Overall, that's a 4% cut and our current interest rates only go as high as 2% leaving little room for further cuts. In fact, former treasury secretary, Larry Summers, said in mid-October, he was worried that the United States would have to cut interest rates all the way down to 0% or lower during the next recession.
Coy Wells: 01:32
To learn more about the recession risk, please call the number on your screen to receive U.S. Money Reserve's latest special report, U.S. Stock Market Crashes: Lessons from the Losses. This report provides many of the causes of previous market crashes, so click on the link below or call the number on your screen right now to get your copy and please give us your thoughts and share this video. Please subscribe to our YouTube channel so you don't miss a single new episode of Market Insights. I'm U.S. Money Reserve's, Coy Wells, and thank you for watching Market Insights.