This week, the dollar hit a new record low against the Euro currency. Additionally, the Federal Reserve may again decide to cut the Federal Funds target interest rate this week, possibly weakening the dollar even further (The Federal Funds rate is the rate that banks loan to one another which impacts many other lending rates in U.S. markets). However, the Federal Reserve may not cut rates due to the increased pressure this places on the economy.
Additionally, the Chinese currency (Renminbi) has recently gained strength versus the dollar despite the fact that the Chinese central bank has increased interest rates dramatically in recent months. If the Federal Reserve decides to cut interest rates this Wednesday (10/31) the currencies I have mentioned here and in class will likely move even further. Inflation is under control for the most part in the United States, but other countries may be having issues with rising prices. Interest rate movements among trading partners have significant impacts on exchange rates and inflation across borders. I would like you to discuss these recent changes in the context of the “prevent recession at any costs” mentality of the U.S. central bank.
Questions you might try to answer:
- What are the implications of a predicted interest rate cut by the U.S. Federal Reserve?
- Why does the Federal Reserve decide to ‘leak’ information on their prospective interest rate decisions?
- If the Chinese, Euro, and/or Canadian currencies continue to appreciate against the U.S. dollar, what should happen to the U.S. trade deficit?
- Can you cite some recent evidence for the change or narrowing in the U.S. trade deficit?
- Cite and discuss someone who agrees with a Federal Reserve rate cut.
- Cite and discuss someone who disagrees with a Federal Reserve rate cut.
Remember… I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.