Forecasts for US Interest Rates

The response of the Fed to the recent stock market turmoils is impressive to say the least. Impressive in the sense that they have not shown any half hearted attempts to cut rates. In response to falling share prices, falling house prices and declining consumer confidence. The fed have cut interest rates by 0.75% and then by 0.5% in the space of a few days.

This cut in rates will have a big impact on homeowners currently struggling to meet their mortgage repayments. However, with rates falling by 1.25%, there is a degree of uncertainty by how much more rates can fall. Inflation rates in Europe recently increased showing that cost push factors were still a threat to inflation.

More worryingly for the Fed is the lukewarm response of the markets to the rate cut. Share prices fell today, despite the half point cut. The key test will be how consumers and the housing market respond to the falling rates.

If the rate cuts fail to create the desired monetary stimulus, the Fed may be forced to try further cuts later in the year.

However, with the weakness of the dollar creating problems for the trade deficit, any further cuts in rates would also cause further downward pressure on rates.