Sunday, August 25, 2024

The Rest of the Story on "Rate Cuts"

Breitbart notes that the Fed is likely to cut interest rates in September, then natters on about 'maybe too many' cuts in the future.  The essay concentrates on the US economy's jobs and inflation numbers.

Too bad; that's hardly the only consideration.

Interest rates also affect the value of the US Dollar (USD) throughout the world in much the same way that they affect inflation.  That is, the higher the interest rate, the more that the value of the USD is preserved (or increased) to other countries, wealthy foreigners, and foreign banks.)  That means, for example, that when rates are higher, OPEC will take less USD for a barrel of oil.  That's exactly what happens domestically; a higher mortgage interest rate will drive down the price of homes--as you are seeing today.

The Fed knows this, so it's likely that their "rate cut" blather is more political than practical.

We'll see.


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