Federal Reserve to Cut Rates : Is it the Truth?

by | Oct 29, 2007 | Asset Management

The two big questions around my house these days are:

1. What kind of Halloween candy will we be giving out this year?
2. When EXACTLY do we change the clocks again?

But the big question around the office is, “what will the Federal Reserve do on Halloween?”

The Federal Reserve meets this week. At the last meeting, the Federal Reserve lowered interest rates by 50 basis points. Some market followers were looking for a cut in interest rates, but very few expected a cut of that size. What will the Fed do for an encore?

If the Fed lowers interest rates, as many expect, this will continue to help the banking and financial sector get back on their feet. This sector of the economy has been damaged with their risky lending practices and subprime mortgages. But they do provide “grease” for the economy.

However, lowering interest rates will only continue to undermine the strength of the US dollar. This can have a very bad effect on our economy going forward. The drop in the US dollar has been historic over the last few years.

So what do the charts say?

All charts point to lower interest rates. While we don’t predict the future, as long as interest rates continue to fall, the dollar will be weak. This helps many international mutual funds and stocks, as well as US companies that do business outside our borders.

So, while many of us will be snacking on Reese’s Peanut Butter Cups, Almond Joys and Three Musketeers, we can also get a “healthy heaping” of what the Fed has decided that day. Hopefully we won’t get indigestion!


Thomas Mullooly
Mullooly Asset Management LLC
Our Only Business Is Fee-Only Investment Advice

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