The United States may or may not be on the brink of a recession, but one thing that’s certain is that our economy is starting to slow down. There are several causes, however most of the blame lies with problems with easy credit that were fueled by historically low interest rates.
CNN (and every other media source) is reporting that the Federal Reserve lowered its forecast for economic growth in 2008, with the markets responding by betting on a rate cut in December.
… in a new economic outlook, the central bank also lowered its growth target for the economy in 2008, raising hopes that the Fed will cut rates again when it meets in December.
In its forecast, the Fed cited “tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices” as the main reason for revising its projections downward.
Let’s try to solve the problem by doing the exact thing that caused it and lower interest rates again! Maybe with lower rates, subprime borrowers who can’t get loans right now will be able to get back into the housing market.
Let’s hope the Federal Reserve has a good understanding of the scale of the problems we’re dealing with. Is it worth saving the economy from recession at the expense of an increasingly devalued dollar and higher inflation? Deflation is also a risk
Eventually the American consumer (and the American economy) has to pay, either now or later. Which will be less painful?
Lower interest rates will devalue the US dollar even more than it already is and will almost certainly lead to more inflation.
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