US Interest Rates cut by 3/4%
Posted by markharrison on January 22, 2008
Well, it’s only ever happened twice before, and one of those was immediately after 9/11… but the US Federal Reserve (the American equivalent of our Bank of England) have just cut interest rates by 3/4 of a percent.
The US economy is deeply into recession, and the hope is that this will kick-start spending again (and make houses look more affordable.)
When someone like the US cuts its rates, that means that typically big investors move money OUT of dollars, and into other currencies like the pound, because they can earn higher rates in pounds than dollars. When that happens, the pound gets stronger against the US dollar.
- Good news for British consumers wanting to buy US products (new Apple Mac Air, anyone?).
- Bad news for British exporters trying to sell into the US market.
The Bank of England was already widely tipped to reduce UK interest rates in February, (but see my article here about why it’s a bad idea to try to pre-judge what the BoE will do.)
I suspect this makes it even more likely that we’ll see a UK rate cut.
Good for the housing market, again, better for those with variable-rate mortgages.
The big question, though is “will the US move actually solve the problem the Fed want it to”…
… and on that, who knows? But Deek over on Twitter has a great video about the issue here