What do you think of the Fed Rate Cut?
Early last week, America’s entrepreneurs and financial community watched anxiously as the Fed prepared to make a set of decisions that would dictate financial transactions for the upcoming quarter (for many, the most crucial time of the year). Read more about that anticipation here.
So how did the Federal Reserve Bank respond to this anxiety? They decided to cut interest rates by twice the normal margin (cuts are usually a quarter-point at the time; the Fed chose to cut it half a point).
The response? An exuberant Wall Street that enjoyed some record gains in the immediate aftermath.
However, not all financial observers are ecstatic about this news. The Arkansas Democrat-Gazette’s Paul Greenberg provides an interesting analysis:
The Dow gained 2.5 percent Tuesday, the day of the rate cut, to close at 13,739 — the biggest one-day jump in five years …
Sure, a great big fat interest-rate cut is a good thing, but as in “too-much-of-a.” How long before the Fed decides that what the economy needs is a whole point cut? Or several of them. Maybe it does, but why get there all at once? …
A quarter-point rate cut would have been a nice appetizer for an economy starved for cash. But a half-point drop makes it sound as if the Fed is getting ready to serve every dish on the menu in one course. Indigestion may result.
The same herd now rushing to buy will soon enough be running to sell when this stimulus abates and the inevitable downturn recurs, maybe bigger and worse. It’s all enough to make one suspect that economics is but a branch of mass psychology. And the patient — in this case the fickle, buying-and-selling public — needs to be treated with care and consistency, not rushed from treatment to counter-treatment.
What do you think? Did the Fed go to far with the cut, and are we going to see a backlash that might hurt investment? Does any of this affect the future plans of your small business? We’d love to hear what you have to say. Sound off in the comments section, below.