When the Federal Reserve lowers interest rates, the US dollar tends to weaken. This reduces the value of the dollar relative to other currencies, making imports more expensive and exports more competitive. A weaker dollar can also make foreign investments less attractive, leading to a decrease in foreign capital coming into the US. Historically, the Federal Reserve has lowered interest rates in the face of economic downturns. In 2008, the Fed slashed interest rates to near-zero levels in response to the Great Recession. This helped to stimulate the economy, but also weakened the dollar and put pressure on exports. The stock market can also be affected by a drop in interest rates. Lower rates can make stocks more attractive as investors look for higher returns. Historically, the stock market has responded positively to a decrease in interest rates. However, a prolonged period of low rates can lead to overvaluation and could potentially cause a stock market bubble.
Famous economist John Maynard Keynes famously said, “The boom, not the slump, is the right time for austerity at the Treasury.” This quote is a reminder that dropping interest rates can have negative consequences and should not be done lightly.
One reason why countries like China and Russia are trying to reduce their reliance on the US dollar is because of its volatility over the past few years and the global economic uncertainty. By building their own infrastructure and financial systems, they can be more independent and mitigate the risks associated with relying on the US dollar.
Furthermore, they can better control their own currency and monetary policy and be less susceptible to global economic forces. Additionally, they can reduce their reliance on the US-dominated global financial system, which has been known to be exploitative in certain areas such as trade and finance.
Finally, they can also increase their influence and power on the global stage by having their own currency and financial system that is not as closely tied to the US.
TOPICS AND TIMESTAMPS:
Fed In A Corner 0:00
Main Street Problem 7:40
Geopolitical Strain 10:45
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