Joe, Re: <What's your prediction now, as far as the effect of the rate cuts on the economy.>
My crystal ball is really cloudy right now.
But you asked, so here it comes. (My thoughts only - any semblance to current economic theory is strictly coincidental.)
The first things rate cuts and money pumping effect are the stock and bond markets. As the fed drops the short term rates the long term rates will rise, as will the market.
The second thing that is effected is the exchange rate. The dollar will become less valuable WRT other currencies.
The third thing effected is the economy/employment.
The last thing that is effected is the inflation rate.
It takes a minimum of 6 months for a rate change to show up in economy statistics.
My take on the situation is that the rates are about right, now. I'd have had them 1/4 point higher now & maybe cut again later, but I can't argue real hard with the two 1/2 point cuts, except they should have come *MUCH* sooner (or at least the first one should have, in my opinion).
But we're still at least 5 months away from effects on the real economy. There's going to be another 1/2 year of ugly earnings & increasing unemployment at a time when the $ will be weakening (in the absence of monetary action by other countries -- notably, ECM, as Japan has used up all it's firepower to no avail). By July, the effects of the current 1% drop will be starting to be felt in the real economy.
What I'm most afraid of is that AG will overshoot the mark and drop the rates too far. If I was in AG's shoes right now, I think I'd be looking hardest at the exchange rates and foreign stock and bond market conditions.
We (the US) are really the world controlling economy(in my view), and the healthiest economy in the world. When we jack interest rates around to control employment and inflation in the United States the first things that we effect are in South East Asia and Japan. Eventually it gets back home to the US.
The right interest rate numbers are important, IMO, but stability is more important, unless the rates are grossly too high or low. It's amazing what self interested business men can work around to make a profit.
So, what do I see? I'm scared to death, but then I'm a pessimist of the first order by nature. I see the need for GRADUALLY decreasing interest rates and a fed that's looking out for signs of deflation.
tgptndr |
