The Case Against Lowering Interest Rates in May 2019

The era we are currently in is unprecedented. The Elite have lost power, the Federal Reserve can’t print money, the IRS is gone, and the dollar has crashed. However, these factors, along with the gold standard and Africa's potential for future wealth, do not necessitate a lowering of interest rates.

Current Economic Trends and Borrowing

Lowering interest rates is typically done to attract qualified borrowers, which is understandable. However, the economy has reached a point where the demand for borrowing has essentially run out. Americans, already at their peak propensity to consume due to extensive debt, no longer need lower interest rates to boost spending.

One way to increase demand is by injecting more real money into the economy through spending. A Trump infrastructure plan, like the one that nearly poised to pass, would have been ideal. However, his backpedaling on this plan has left a notable gap in economic stimulus.

The Impact of Loose Money Policies on the Stock Market

Decades of loose money policies by the Federal Reserve have created a stock market bubble that many hope will deflate gradually. Instead of stimulating GDP in the short term, these policies primarily benefit asset prices, such as real estate and stocks.

For serious investors in viable projects, interest rates are not a major concern as long as real interest rates (nominal interest less inflation) remain below 2%. Currently, real interest rates are between 1% and 0%. If anything, the Federal Reserve (Fed) should consider raising interest rates to create room for substantial cuts in the event of future financial crises.

The Fed’s monetary policy has a limited reach. Handshake agreements between individuals or institutions, such as borrowings from family members, are not tracked. While the Fed can influence the market for collateralized loans, mortgages, and car loans, it is estimated that the Fed’s direct influence is well under 50%.

Thus, the overall economic landscape suggests that the Fed should increase interest rates to around 4% nominal, gradually and stepwise. This would have been even better if implemented two years ago, as it would prepare the economy for future financial crises.

Conclusion

In summary, the current economic trends, the impact of loose money policies, and the limited reach of the Fed’s monetary policy do not support lowering interest rates in May 2019. Instead, raising interest rates would better position the economy for future challenges.