Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Economic News

Why Should the Fed Rate Cut Worry You?

money bill

The Fed cut rates by an expected .25%, but the stock market expected a .50% rate cut in the Discount Rate.  The Fed is rumored to be working to cut that rate more right now due to the plummet of stocks yesterday.

But, should the Fed even be cutting rates right now?  Are the rate cuts anything more than bailing out financial markets and trying to appease the markets?

Look at recent history.  The main reason we are in this mess is the Fed cut rates to 1%, left them there for a while, and then did not aggressively raise them.  This allowed for "credit" to be overly extended and lenders to take on more risky loans.

So, are we to think that things have changed and we, as Americans, will not run out and add more credit, again?

Advertisement. Scroll to continue reading.

What about inflation?  PCE may still be in the "comfort zone", but it is worth noting it ticked higher in the last report.  With rates being lowered, inflation is likely to grow freely again.

So, why is the Fed really lowering rates?  They continue to mention "inflation risks remain" yet the market acts as if that is not the case.  In fact, the markets react more when they don’t get their way, like the .50% cut in the Discount Rate.

It should make you think a little harder about what has changed and what remains the same.  Think about it hard and let me know your thoughts.

Advertisement. Scroll to continue reading.
Written By

Writer for national real estate opinion column, focusing on the improvement of the real estate industry by educating peers about technology, real estate legislation, ethics, practices and brokerage with the end result being that consumers have a better experience.



  1. PeterT

    December 12, 2007 at 2:29 pm

    Robert, with $3 a gallon gas inflation is a concern, but I think deflation is the bigger worry now. If we go into a recession we drag the rest of the world down with us and it will not be pretty.

    Chances are they will go too far and this will set up the next boom cycle. But that’s a ways off yet. Right now the Fed needs to make a statement that they are going to do whatever is necessary to keep the economy liquid.

  2. Robert D. Ashby

    December 13, 2007 at 8:38 am

    Peter – I agree the Fed will do whatever it takes to keep the economy liquid. It is like the government rushing to save the homeowner from foreclosure. They never get it right and only delay the inevitable.

    Economic cycles, including recessions, are healthy. If an economy has grown too fast, a recession may be in order to balance it out. That is part of a “normal” cycle. Screwing with it only delays the process and prolongs the problems. It never truly allows for the “correction” that is needed.

    Of course, I am not an economist, but that is the way I have seen it for a long time and looking back at history, still believe it to be true today.

Leave a Reply

Your email address will not be published. Required fields are marked *


American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.




Housing News

Originally published in 2008, this visual tribute to 9/11 and stories told by professionals about their experience, remains a touching piece of history as...

Business Marketing

In case you missed all the fun, last week I hosted a virtual real estate discussion in the Redhead Lounge. This second installment includes...

Economic News

Much of my time is spent focused on reading and listening to Dr. Mark Dotzour, Chief Economist for the Texas Real Estate Center, the...

Opinion Editorials

Gas got your tounge? In these times when everything from apples to zucchini is going up, and you need a small loan to fill...

The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.