"Federal Reserve officials have acknowledged that a softening business climate may need help, overriding concerns about another bout of painful inflation. But cheers for such economic assistance and some observers, including President Donald Trump, think the cuts should be steep should be tempered. Why? When the Fed hands out discounted financing, it usually indicates the economy is in trouble. Plus, the cheaper money isn't an immediate cure."
"My trusty spreadsheet examined the relationship between Fed Funds and key economic variables over the past 40 years. The 480 months since 1985 were divided into three groups by 12-month changes in Fed Funds. When the Fed was most active the 160 months with the most significant cuts Fed Funds dipped on average to 3.8% from 5.6% 12 months earlier. That's a 1.8 percentage-point drop. And note that this rate has averaged 3.4% overall since 1985 and is currently at 4.3%."
A Fed rate cut is often a response to economic softening and signals underlying trouble rather than an immediate fix. A 40-year analysis of monthly data since 1985 divided 480 months into three groups by 12‑month changes in the Fed Funds rate. In the 160 months with the most significant cuts, the Fed Funds rate fell on average from 5.6% to 3.8%, a 1.8 percentage-point decline. The long-term average Fed Funds rate since 1985 is 3.4% and stood at 4.3% at the time of analysis. Aggressive Fed easing commonly coincides with lower 30-year mortgage rates and weaker business activity.
Read at www.ocregister.com
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