No Cut Without Risk

The Federal Reserve cut rates by 25 basis points, but will this stimulate the economy or create a another financial bubble?

The Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 27, 2019. Brendan McDermid/Reuters

The current economic climate is almost schizophrenic in its behavior and indicators, especially in the housing market. Normally, in a good growth environment with high employment there is no need to cut rates. That’s only necessary if the economy is slowing.

So why did the Fed cut rates last week?

Conflicting Data

On the one hand, with falling interest rates and sky-high housing prices, to some economists such as Robert Shiller, it looks like 2005-06 all over again. Shiller’s housing index, the S&P CoreLogic Case-Shiller index, tracks the values of the residential housing market in the top 20 regions. The index shows that as of June, housing sales have slowed for 15 consecutive months.