Fed ready to cut rates again – Is that what we need?

by January 12, 2008 • 5 comments

On Thursday, Ben Bernanke indicated that the Fed was prepared to do whatever necessary to ward off a recession, even if it meant cutting interest rates again.  Many economists are speculating a .5% cut, but most anticipate a .25% cut.

I went to the Friday at the Beach Chamber event this morning and the guest speaker was Dr. Rick Harper, Director of UWF’s HAAS Center for Business Research and Economic Development.  He was saying that a monetary policy is not what we need right now to spur the economy, we need a fiscal policy.  He was saying that interest rate cuts are not what we need, but we need targeted tax cuts to lower and middle income groups, the large part of our consumer spenders.

This makes sense to me (although I am not against interest rate cuts).  As a modern consumer, interest rate cuts don’t do me any good.  If I refinanced a couple years ago to get money to spend on consumer goods, then my property value went down, and my taxes and insurance went up, how could I benefit from lower interest rates?  I can’t refinance again, my property probably wouldn’t appraise, and even if it did, I’m still in debt up to my eyeballs from the last time I refinanced for more money because I couldn’t pay that debt down with my salary raise because that is going towards my raised insurance and tax bill.

Harper was saying that we need a targeted tax cut for the lower and middle income families.  The lower and middle income families are the majority consumer spenders.  If their bill outtake can be lowered, then they will have more free money to buy consumer goods.  If they have more money to buy more consumer goods, then more people have jobs, etc., etc.

I wonder how much of a tax cut we would need to see a large-scale economic effect.

As a side note, I do see how interest rate cuts can benefit the small business.  I am employed by a small business, and this is important to me.  I am, by no means, against interest rate cuts.   

Click here to read the article about Bernanke cutting interest rates in Januray 29, 2008.

Click here for Dr. Harper’s PowerPoint Presentation supporting his discussion at the Beach Chamber’s Friday at the Beach.

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1 Steve January 12, 2008 at 8:48 pm

why is an interest cut just for NOT the middle class? How myopic! Its for everybody. 80% of all jobs are from small business. Did you ever get a job from a poor person? Oh Pluzzzz . . Jason . .get real!

If the gov goes after the “the strong horse that pulls the big load behind” . . you are screwed!


2 Jason January 12, 2008 at 10:11 pm

*confused. I think you should re-read the post, man. What I am saying is that I agree with Dr. Harper in that I think targeted tax cuts would be more beneficial to the economy than lowering the interest rates. I don’t understand your point in saying that this will be “going after the strong horse that pulls the big load behind”. If you free up more consumer money, small businesses would benefit.

I’d appreciate it if you would further explain your point before slandering me.


3 Chris January 13, 2008 at 7:19 pm

Cutting interest rates is just another way of loosening up the credit crunch that is currently cripling the economy. Lowering interest rates makes it easier and more affordable for businesses and individuals to get loans. This can allow businesses to fund new endeavors and individuals to purchase real estate that they might not do at a higher interest rate.

Can’t hurt and sounds good to me even though I’m not currently in the market as a potential buyer. Any help to get the people on the side lines back into the real estate market is a postive.


4 Chris Elgee January 15, 2008 at 10:59 am

We need a dramatic cut in the capital gains tax for the next three years. By cutting the tax we would create significant movement in capital markets thus creating significant demand in all areas of the economy. We do not need $500 sent by our government to each tax payer so that everyone goes out and purchases an i-pod.


5 Jim Bisch June 10, 2008 at 7:47 am

It is idotic to think that if 5% is not going to help out all of us on the mortgage loans, or even lower.. some one needs there head examined. the whole mess would clearup and everybody could afford a home even with a bad loan just by refi to 5% or (lower) 4.5% the economy would be red hot within a week. The problem is the fed can’t do it anymore because it has sold us out to the uk and the euro