Federal Reserve & Interest Rates

The dollar has also continued to fall tremendously.  Rock bottom lows against the yen, euro and the British pound were recorded Friday.

The dollar is now $1.5187 to he euro, and $1.9867 to the British pound.  Then yen traded at 104.17 against the dollar.  The dollar is at its lowest point for about three years.

With additional cuts, which are expected at the Federal Open market Committee’s March meeting, the dollar could plummet even further.  The lower the interest rates go, the greater the gap between the dollar and the euro.  That gap is not necessarily in our favor.

Foreign investors are less likely to invest in dollar based opportunities.  The U.S. trade deficit is also adding to the weakening of the dollar.  Experts expect the dollar to continue to weaken even further for 2008.  This is highly probable, especially since the FOMC will most likely continue to slash the interest rates.

President Bush suggested on Thursday that he doesn’t see a recession coming, at the White House conference.  Apparently, economists, investors, and all of the most recent economic data says otherwise.  What reports are he reading?  He seems to have an extremely optimistic attitude about the current state of the economy.  He also expressed quite a bit of confidence in the upcoming implementation of the stimulus package.  Giving $300-$1,200 to everyone is the plan.

In theory, the economic stimulus plan can help to give a boost to the economy if it encourages consumer spending.  The idea is that sooner or later, this money will end up being spent, which will improve business performance.  Bush seems to think that this effort will be enough to eliminate the possibility of recession.  Optimism is nice, however, the threat of recession will remain until the money actually does find its way back into the system.  With consumer confidence at all time lows and the rate of overwhelming debt being ever present, the money will probably end up in the hands of creditors.  In other words, I think more of the money will be put towards things people have already purchased and haven’t paid off yet.
It is unrealistic to think that there is no threat of recession.