It was the week of the “Feds,” as not only did our Federal Reserve Board lower rates by .25% last week, but also other Central Banks around the world weighed in. The Bank of Japan and Bank of England both kept their already low interest rates steady, one week after the European Central Bank also made the same decision. These actions served as a reminder that our economy is linked to the world economy.
One reason cited for our Fed lowering rates was the slowdown in the world economy, which could very well spill over into our own economic situation. Thus far, our economy has been performing decently this year, but the second quarter was definitely slower than the first. The question is–will the Fed’s decision to lower rates bolster our economy? The answer to this question is more complex than it would seem.
Interest rates had already moved down significantly in anticipation of the Fed’s action. Since there was no surprise .50% cut, rates may not have moved much further unless the Fed was expected to act again. And there was no clear-cut signal on that issue which came from the Fed announcement. However, within 24 hours, the Administration announced new tariffs which caused more commotion in the bond and stock markets than the Fed activity. Either way, the lower rates which preceded the Fed’s move and followed the tariff announcement, seem to already be having some positive effects — especially within the housing sector where purchases are picking up and refinances are strong.