Market Commentary

Interest Rate

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The President has called for an interest rate cut of up to 1 full percentage point while the Fed states that rates are fine where they are. Historically the rates are still low. The Fed increased them 9 times over a two year period with the last increase in December. So why would the President and the Vice President both call for a reduction now?

The argument is that yes, everything is fine, the U.S. economy is strong with full employment, however the world economy is not. The IMF has consistently downgraded world GDP growth over the last year. Inflation, one of the main enemies of the Fed in their effort to keep it low, has fallen to below their target rate and is not a threat. If the economy is strong without inflation and the Fed, as history shows, is always late in their increases and decreases of interest rates, the thinking is they need to get ahead of the next downturn now.

Of course, maybe the President is worried that if the Fed does not move now, we will be in a slowdown economically by his re-election day. That is a real possibility. He may well be right about reducing rates even though it is self-serving as well.

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