Positive Effects Of Lower Interest Rates Will Take Time To Appear
Everyday more and more high profile financial firms are reporting huge losses from their lending activities, as the scope of the sub prime mortgage disaster continues to grow. General Motors is the latest casualty, reporting a whopping $39 Billion charge mostly due to losses in its 49% stake in GMAC. As the fears of investors grow, the stock market is becoming increasingly volatile.
Some of the negative side effects are already being felt in the marketplace, as the dollar continues to weaken and oil prices march inexorably to the $100 a barrel mark. However the positive effects will take longer to appear. Â
In past decades our manufacturing sector could have taken advantage of the weak dollar and increased exports substantially but the U.S. has become increasingly a service based economy recently. It remains to be seen what impact the weak dollar will have on our trade deficits and if it will curb Americans notoriously vociferous appetites for increasingly expensive imports.
Still hopefully the move will ease some of the current credit crunch and keep capital flowing freely to the still healthy segments of the economy like the tech sector. Most people won’t even notice these effects but if economic growth can remain stable through this rough period, the long term positive impact will be substantial if not newsworthy.
So basically the Fed rate cut will have little noticeable impact in the short run but will hopefully hasten the recovery of the financial sector and minimizes the negative effects on the rest of the economy.
