It seems like every time I think about what to talk about I am always coming back to interest rates.
The Federal Reserve made another 25 basis point cut which most economists feel was unnecessary and useless. A review of the Fed Committee meeting indicates that there was NOT a consensus among its Board Members. This is not a bad thing but very different than when Bernanke and Yellen were running the Fed.
It is reasonable to expect short term rates, such as CDs and Money Market Funds to see lower rates in the future. This just makes these investments an even worse bet given that the interest you are being paid now by the banks is lower than inflation. This means while you are being paid interest you are actually losing purchasing power and getting poorer every day.
If you think the U.S. has a challenging interest rate environment let’s take a look at Europe. Mario Draghi (former head of the European Central Bank) cut rates deeper into negative territory before resigning as head of the ECB.
What amazes me about central bankers, particularly in Europe, is that these bonehead policies have been in place for so long but have done absolutely nothing for the European economy. I mean negative rates have yielded zero results (no pun intended) for any economy that has implemented them. What good is moving a rate from -0.4% to -0.5%?!?!
From an investment perspective, this will have little to no impact on how we are making decisions concerning how to invest now and in the future. This just gives the Talking Heads on TV something to argue about and possibly make for some interesting conversation at the backyard BBQ this weekend.
Have a great weekend.