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I agree with EM there are immediate benefits for consumers, of any class, primarily lower borrowing costs on large ticket items like homes and cars as well as reduction in credit card interest rates. However, I don’t think the Feds historical approach of lowering rates to boost unemployment is going to work as it has in the past. While lower cost borrowing for businesses typically fueled more hiring in the past, we have seen very clearly lately that companies are investing much more in AI/automation than in hiring, which counter to the goal of increasing employment will actually lead to more unemployment. I don’t have the answer to this challenge but I don’t think the Feds historical approach and toolset is going to work in the age of AI.
The middle class benefits significantly and uniquely from rate cuts. They are not wealthy enough to avoid taking out loans for expenses (e.g., mortgages, car payments, credit), yet they have enough money to invest in equities, fixed income, and other dollar denominated investment vehicles. As rates go down, the middle class is able to refinance their largest expenses and use that saved money to either invest or spend (which is stimulatory). The cost to borrow money for the companies that they are invested in also goes down, therefore the companies borrow and swing into growth stages which drives stock prices up and delivers returns to middle class.
Well said both of you! Yes, my point was that the implied benefits for middle class for rate cuts far undercede the long term impact and picture with AI taking over.
Any benefits to the middle class are happenstance. That's the core thing to remember.