The Fed has cut interest rates in the two weeks by more than significant amounts...but can these interest rate cuts really save the economy? More and more it's looking like the Fed is becoming more powerless in the markets. There are a few reasons why I believe that the current Fed has less power than ever before:
The falling dollar. First of all, let me just say that lowering of interest rates causes a drop in the value of the dollar. This happens as investors are able to find better interest rates in Europe and abroad. Some people believe that this will boost exports and and American GDP as more foreigners vacation here. However, these positive effects are negated by rising input costs and the increasing number of basic products so imported from foreign countries. As the dollar continues to fall, oil becomes increasingly expensive. This, of course, means people have to spend more on transportation costs than before and less on, say, trips to Disney Land.
The Chinese Government to trying to slow down their overheated economy. With China trying rein in their racing economy they are starting to slowly let the Yuan appreciate against the dollar. As you know, almost everything is made in China. So everything will become more expensive to import. There is only one way this can affect profits: send them down.
There are some companies that will definitely benefit from the falling interest rates. Those companies are that are using debt to expand will obviously benefit from lowering interest rates, like Aegean. Also, the companies that sell a large amount of products overseas, like Exactech.
Hopefully, for all investors, the market can prove me wrong but we'll see....
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