Mar 18 2008
What is this Fed? And What are They Doing to My Dollar?
The Federal Reserve just made an aggressive three quarter cut from 3 to 2.25 percent. Everytime Fed. headlines emerge, I always overhear misconceptions about what it is and what it means.
So, putting my minor in economics to use, here’s the short version.
The Fed rate controls the cost of big banks to borrow money, temporarily from the US government (banks do this to lend more money). So when the Fed lowers rates, it makes the US dollar cheaper. A cheaper dollar is good for those in debt, spurring inflation, but it is also worse for investment returns… but you’ll be able to invest more, since the money’s cheaper.
Up Side of a Limp Dollar
A weaker US dollar is good for manufacturing; and generally anybody who wants to export goods to other countries. On the other hand, in return, you won’t be able to get as much for your money. Think about that while you’re looking for cheap stuff at Walmart.
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