Do Lower Interest Rates Help or Hurt Us?

Trump is calling for the Federal Reserve to “get interest rates down to zero, or less…” Lowering interest rates is a way to stimulate the economy. Buying cars and refinancing homes allows us to have more discretionary income. That’s good. Seniors who rely on savings for retirement have decreased spending power and can’t keep pace with inflation. That hurts. If the government refinances its outstanding debt, they would have to pay high premiums to buy back their bonds – some as high as $1.40 for every $1. That’s not good.

If interest rates are negative the banks may have to pay to park some of their money at the Fed. Banks, in turn, could pass those interest costs to consumers by charging for deposits. Can you imagine paying a bank for your savings account?

Markets go up and markets go down. The Feds use monetary policy, like interest rates, to either slow down the economy so inflation does not get out of hand, or to stimulate the economy to get out of recessions. Yes, we are headed for a recession. It’s just part of the economic cycle. Is it wise to decrease interest rates to keep an economy going? What recourse do we have when we actually have a recession?

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