As expected, U.S. cut its interest rates by 50 basis point to 1%. Multiple central bankers followed suit thereafter, including China and Norway, who slashed rates respectively. The Bank of Japan is also considering cutting rates on Friday but will watch market conditions before deciding. More countries are expected to follow suit.
The interest rate cuts, sent the U.S. dollar plunging to its biggest one-day drop in 23 years yesterday!
It is widely expected that U.S may further reduce rates in December. If this happens, U.S. will be reminiscent of Japan, which has been maintaining a zero or sub-zero interest rate over the past decade. However, bear in mind that Japan failed to revive its economy despite slashing rates to zero in 1999! Also recalled that Japan became mired in a decade of lost growth in the 1990s after the real-estate prices collapsed, which is now happening in U.S! That caused a severe bout of deflation in Japan, which is a destabilizing drop in prices.
Will history again repeating itself, albeit this time in the U.S?
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