KNOXVILLE, Tenn. — Lower interest rates could boost troubled overseas economies more than they help the U.S. economy, a University of Tennessee economist said Thursday.
Dr. Matt Murray said the interest rate cut hinted at by Federal Reserve Chairman Alan Greenspan is unlikely to trigger a surge in U.S. consumer spending since the nation’s economy already is doing well.
However, it could increase investments in economically troubled countries and help ease foreign financial ills that threaten the world economy.
“I don’t see interest rate cuts having a huge impact on this nation’s growth,” Murray said. “The more important impact lower interest rates will have is to reduce the attractiveness of the U.S. dollar in international currency markets and help prop-up exchange rates of countries and financial markets of countries abroad.
“Lower interest rates here make it less attractive to invest in interest-bearing accounts in the United States. Investors may then move marginal investments to other countries — hopefully to those economies where investment is lagging seriously.”
Greenspan said Wednesday the Fed needs to act soon to respond to the global financial woes. Many economists say that means an interest rate cut will be announced at the Fed’s meeting Sept. 29.
“As Greenspan noted, we cannot remain an island of prosperity in the midst of global economic slowdown,” Murray said. “The global economy is in a fragile position and getting more so every moment. Now is the time to act by lowering interest rates.”
Murray says most U.S. consumers do not fully understand the link between global financial problems and lower U.S. interest rates.
“I don’t think the typical American taxpayer or consumer understands or appreciates the extent to which the world economy is mired in chaos and economic insecurity,” Murray said.
“Americans may look at an interest rate cut as a treat today but as the year ends, this global economic instability may cause them to see interest rate cuts differently.”
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Contact: Dr. Matt Murray (423-974-5441)