Fed Cuts Interest Rates For The First Time Since 2008

The Federal Reserve announced on Wednesday that it cut interest rates for the first time since 2008. The 0.25 percentage-point cut to its baseline interest rate brings the range to two to 2.25 percent.

While the U.S. economy continues to produce low unemployment and rising wages and consumer spending, recent data from the Commerce Department suggests that this rate of growth is slowing, due in part to a downturn in business investment. Trade tensions, economic uncertainty and possible recessions in China and Europe may also harm the U.S. economy’s performance.

“An interest rate cut is certainly positive for the tempo of business in the short run,” says Marc Simon, CEO of HALO Branded Solutions. “It will encourage business investment and should stimulate economic activity. While there might be risk of overheating the economy in the longer term, the absence of meaningful inflation for the past dozen years tends to suggest that the risk is acceptably small."

In announcing the cut, the Federal Reserve’s Federal Open Market Committee said, “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to two to 2.25 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions and inflation near the Committee's symmetric two percent objective are the most likely outcomes, but uncertainties about this outlook remain.”

Reducing the interest rate should lower borrowing costs and potentially spur business investment, although how it will impact the promotional products industry is uncertain.

“The small drop in interest rates by itself means little; the change in rates will have no impact on what we do or don’t do,” says Gene Geiger, MAS+, chairman of distributor Geiger. “The larger issue is whether the Fed’s lowering rates because of a softening economy foretells a recession in the near to medium future, something that one could argue is overdue. We have to scenario-plan how we would react if that takes place and hope it is not deep or long lasting.”

Greg Muzzillo, founder of distributor Proforma, adds, “Overall, the good news from yesterday’s rate cut was quickly upended by President Trump’s announcement today about an additional 10 percent tariff on Chinese goods. I am sure people smarter than I can prognosticate on what impact all this may have on our industry, however, wearing my business development hat, I would advise all distributors to stop reading the news and start spending more time growing their business.”

filed under August 2019
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