An article in today’s New York Times announced the Federal Reserve’s decision to reduce interest rates. The decision came after an unplanned policy meeting on Monday evening, and it reduced the Fed’s overnight lending rate by three-quarters of a percentage point, to 3.5 percent.
First, I want to make it clear that I have always been a big supporter of the Fed using interest rates to enforce economic policy. History proves that adjusting interest rates works. However, I question the significance of using interest rates to balance today’s economy – I just don’t believe it has the same effect as previous years. With other economic factors such as gas prices and the war, I don’t see interest rates replacing the much-needed consumer confidence that creates a thriving economy. I do believe lowering interest rates can help save us from a much-feared recession in the short run, but the other factors seem to keep the economy stagnant.
Bottom line: lowering interest rates is likely a short-term solution to a bigger problem.
I’d like to hear your comments…