Lower for longer?
There has been a lot of buzz in the financial sector about the movement of interest rates in the world. In the global recession of 2008, interest rates saw a significant decline to stimulate the economy. Zero to below rates proliferated in that era to encourage people to spend.
This year, the talks revive anew as economy seems to slow down again. Central banks in New Zealand, Thailand, and India cut interest rates, with Australia believed to follow suit. It’s indicative of slowing growth on a global scale, notes professional investor Damon Vickers from New York, which could likely negatively affect rates.
In Europe and Japan, interest rates are below zero, which means consumers and businesses pay in order to deposit cash. Some experts believe that US might reach the negative end of prices, too, mainly since the US-China trade war is still a thing amid ongoing talks between the powerhouses.
While the world is still waiting for the Fed’s next move, the biggest question now is whether global interests are headed to zero. Damon Vickers believes that there is a 70% chance that the Federal Reserve might do another cut in December even with an apparent slash happening sometime in the last week of October.
The next moves of the Fed can affect the international market as a whole. Such rate reductions mean to stimulate the global economy to combat its slowing growth. It’s also timely since the Christmas season, one of the busiest in terms of market movement is coming.
Damon Vickers warns about the perils
The economy is slowing down, but there is no need to worry about the Great Recession happening again, according to Vickers. There are many factors to consider, including weak productivity growth and the aging population not only in the US but in other parts of the world.
Consumers might be taking the winning end of the stick, what with lower monthly costs for purchases like cars and houses. Businesses and borrowers can also benefit from it, but for every positive, there is an opposing downside to it.
“Easy money can be attractive, but also exposes consumers and businesses to economic stresses in the long run,” notes Damon Vickers. For instance, ATM fees and overdraft charges might increase due to slimmer profit margins for banks.
However, tension from early this year, such as the Brexit decision and trade wars, has significantly calmed down. This turn of events might mean the world is yet to experience negative rates for now.