Doug MacGray’s Weekly Market Update – September 23rd
This is a weekly update from Doug MacGray a Certified Financial Planner who takes very good care of my clients and who I highly recommend.
INTEREST RATE CUTS: Are there downsides to the Fed’s cut in interest rates? Answer: Of course. First, the possibility of higher inflation usually goes along with a drop in rates. Most don’t think that’s a real issue these days due to the slowdown in the economy and the impact of globalization. Two major indications of this were announced this week. The Consumer Price Index (CPI) of -0.1% and the Producer Price Index (PPI) of -0.4% dropped. Those low inflation numbers effectively gave the Fed “permission” to focus its concern on economic growth rather than price stability. As long as growth lags, and inflation remains modest, the Fed will be under pressure to keep rates low. The second negative consequence of lowering interest rates was the effect on the U. S. dollar. The dollar dropped to record lows against the Euro (¬) and fell to even parity against the Canadian dollar for the first time in more than thirty years. The weak dollar makes foreign goods and overseas investments more expensive, but it also helps American manufacturers sell more of their products in foreign markets. Higher exports usually translate into more job growth here at home. The Fed’s action won’t solve housing’s problems overnight, and it’s not likely to boost growth by that much, either. I have read and heard responses by many economists who know a lot more about this than me, and a slim majority seem positive about this move by the Fed. (See some quotes at the bottom of this post)
