Are Americans Obsessed With Rate Cuts?

Barely a week after US Federal Reserve slashed interest rates by a massive 75 basis point, Americans are again with high expectations expecting US Fed to further reduce rates at today's FOMC meeting, as if the 75 basis point was not enough. So the world is now waiting anxiously for the outcome of this meeting and whether interest rates will be further reduced. A reduction in rates will most likely provide an immediate (albeit short-term) boost to Wall Street and the rest of the world.

First and foremost, last week's rate reduction was surely a panic sign by the Fed to rescue US ailing economy to say the least. Surely, the problems in US economy could be worse than what it appears to be. Looking back, the last time US Fed had made such a massive reduction was in 1982.

So, with barely a week passed, is it justifiable for US to reduce rates further? After all, any monetary policy measures will generally take 3 to 6 months to see the effect. Moreover, the Fed had repeated emphasized in the past about the real threat of inflation. Inflationary pressure will surely increases with such aggressive interest rates cut!

On the other hand, US currency, which has depreciated significantly against other major currencies, may further weaken. With US being a major importer of consumer goods, a weak dollar may further fan the flames of inflation! In addition, prices of commodities denominated in US Dollar, such as crude oil, may rise further.

I can understand why Americans in general would like to see more rate cuts. None other than related to housing. Lower rates will increase American's affordability to secure a loan for housing purchase, thus improve housing transactions and possibly stablize or increase prices in the longer term. After all, housing is the root of the problems in US and is also closest to most Americans' hearts.

However, we all need to look at the big picture and weigh the pros and cons of any measures or desires. Panic and overkill solutions (without letting the dust to settle first) may not be the best long term solution, I am afraid.

What's your view on this? Should US Fed reduce interest rates further right now? Do leave me your comment on this.