# Why is the Fed planning to cut rates next week? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [February 29, 2020, 12:10am UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683 "2020-02-29T00:10:38Z")\ **Posts on this page:** 10\ **Page:** 1
**Author:** ![Jackknifed\_Juggernaut](https://avatars.discourse-cdn.com/v4/letter/j/9de053/32.png) [@Jackknifed\_Juggernaut](https://boards.straightdope.com/u/Jackknifed_Juggernaut)\ **Post date:** [February 29, 2020, 12:10am UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/1 "2020-02-29T00:10:38Z")
This makes no sense to me at all. How can rates spur economic activity when the reason for the slow down is fear of illness and restrictions on travel (and human interaction, in general)? And if global and local supply chains are disrupted, isn’t inflation a significant threat as well? Doesn’t seem like a good time to cut rates. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 29, 2020, 1:39am UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/2 "2020-02-29T01:39:19Z")
So they can be seen as doing something? So Trump doesn’t yell some more? Because it couldn’t hurt? (It could if a recession hits.) The market liked it, anyway. But it is a supply problem, not a demand problem, so the writers I read think it is not going to do much good. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [February 29, 2020, 2:18pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/3 "2020-02-29T14:18:57Z")
The global economy has been teetering on the edge of recession for a while now. It doesn’t take much to push it over the edge. Maybe it’s the virus, maybe it isn’t. But an edge is an edge. The Fed is doing what it normally does when a _lot_ of economic indicators are pointing south. Frankly, I’m surprised this didn’t happen at least 3 months ago. Note that blaming the _virus only_ is a political stratagem. It is wise to not fall for this. ---
**Author:** ![dalej42](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@dalej42](https://boards.straightdope.com/u/dalej42)\ **Post date:** [February 29, 2020, 5:15pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/4 "2020-02-29T17:15:58Z")
It would be a horrible idea. The Fed messed up badly when the cut rates last year to appease Trump. The Fed is supposed to be independent but they allowed themselves to be bullied ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 29, 2020, 6:24pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/5 "2020-02-29T18:24:56Z")
> [@ftg](#): > > The global economy has been teetering on the edge of recession for a while now. > > It doesn’t take much to push it over the edge. > > Maybe it’s the virus, maybe it isn’t. But an edge is an edge. The Fed is doing what it normally does when a _lot_ of economic indicators are pointing south. If you put up the sandbags whenever there is a hint of rain, you soon run out of sand. There may be signs of a recession, but there is no recession yet, and if they lower the rates again there isn’t going to be a lot of room for stimulus when one hits. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [February 29, 2020, 9:23pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/6 "2020-02-29T21:23:36Z")
Market timing is a sucker’s game. Unfortunately, by its mandate, the Fed is all about market timing. They have to make decisions _now_ that will affect the economy 3-6 months in the future. They are human. They make poor decisions … once in a while. But generally they do a good job, esp. post Greenspan. Very data driven with a lot analytic people working for them. IMHO, I think this is not a “market correction” but the beginning of a long expected slide. So their timing is likely to be correct. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [February 29, 2020, 10:06pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/7 "2020-02-29T22:06:37Z")
> [@Jackknifed\_Juggernaut](#): > > This makes no sense to me at all. We could and likely would have a major recession, even worse than the direct effects of the virus itself, without strong monetary action. > [@Jackknifed\_Juggernaut](#): > > How can rates spur economic activity when the reason for the slow down is fear of illness and restrictions on travel (and human interaction, in general)? More than one thing can happen at a time. There is absolutely nothing the Fed can do about a “real shock”, such as businesses shutting down from health concerns. They’re completely powerless in the face of such a thing. But if people fear for the future _because_ businesses are cutting back, and we start spending less in an attempt to save, then [that attempt to save might fail](https://en.wikipedia.org/wiki/Paradox_of_thrift). And that is something that the Fed, absolutely, can help with by maintaining constant growth of spending in the economy. The primary mechanism here is money, not interest rates, but for absurd historical and mathematical reasons, interest rates are how this is communicated to the public. > [@Jackknifed\_Juggernaut](#): > > And if global and local supply chains are disrupted, isn’t inflation a significant threat as well? Prices can go up for more than one reason. If a bunch of shit burns down, decreasing the total supply available, then prices will go up. This is a simple, honest economic signal. It signals: scarcity. There is less of this item available, therefore what exists is worth more. (Demand curves slope down. Marginal utility of stuff decreases.) The other reason prices can go up is that the amount of stuff remains roughly the same, but the amount of money increases. More money chases the same amount of goods, and so prices go up. Totally different! If the coronavirus shuts down businesses, then those businesses will make less stuff, and so the price of stuff will go up by a clear economic signal of scarcity. If the Fed then tries to fight that “inflation” by contracting policy, then that can cause even more damage on top of the original damage. > [@Jackknifed\_Juggernaut](#): > > Doesn’t seem like a good time to cut rates. There could be economic disaster if the Fed doesn’t cut rates. The Fed isn’t trying to react to the virus itself. It will be trying to react to the reaction. If we all try to save simultaneously to prepare for the virus, we will simultaneously fail. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 29, 2020, 10:07pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/8 "2020-02-29T22:07:26Z")
> [@ftg](#): > > Market timing is a sucker’s game. > > Unfortunately, by its mandate, the Fed is all about market timing. They have to make decisions _now_ that will affect the economy 3-6 months in the future. > > They are human. They make poor decisions … once in a while. But generally they do a good job, esp. post Greenspan. > > Very data driven with a lot analytic people working for them. > > IMHO, I think this is not a “market correction” but the beginning of a long expected slide. So their timing is likely to be correct. Yeah but they cut rates already when there was a strong economy and a climbing market. We don’t want to get into the situation in the 2000s where low rates meant that banks had to find riskier investments to get their returns. We know how that worked out. ---
**Author:** ![Marcus\_Flavius](https://avatars.discourse-cdn.com/v4/letter/m/a4c791/32.png) [@Marcus\_Flavius](https://boards.straightdope.com/u/Marcus_Flavius)\ **Post date:** [February 29, 2020, 10:14pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/9 "2020-02-29T22:14:31Z")
Keeping rates artificially low will cause more distortions in the market, which means the bubble gets bigger and more dangerous, which means the economic crisis that results from it bursting will be more severe and painful. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [March 1, 2020, 4:20pm UTC](https://boards.straightdope.com/t/why-is-the-fed-planning-to-cut-rates-next-week/848683/10 "2020-03-01T16:20:39Z")
> [@Voyager](#): > > Yeah but they cut rates already when there was a strong economy and a climbing market. > We don’t want to get into the situation in the 2000s where low rates meant that banks had to find riskier investments to get their returns. We know how that worked out. I was going to mention last year’s easings and my (negative) thoughts about it, but I let it slide … til now. OTOH, it really did look like we were closer to a downturn than it turned out to be. Hindsight it always 20/20.