Global Rate-Cutting Frenzy Could Freeze US Economic Recovery

Central banks around the globe, including those in Canada and Australia, continue to reduce interest rates, pump more money into their economies and reduce the value of their currencies to strengthen exports. “Countries appear to be lowering rates at least in part to discourage investors from buying their currency, as they jockey for position with trading partners doing the same,” reports David Parkinson for the Globe and Mail. “A lower currency improves price competitiveness of exports, and countries are looking for any edge to protect their share of the global trade market and keep their sluggish economies moving.” Central bank activity prompts investors to snap up the US dollar – even as the US Federal Reserve, the country’s central bank, is considering a gradual lift on interest rates. The strong dollar is encouraging US imports and discouraging exports, resulting in slumping factory orders and corporate earnings. Fast-changing currency values, deflation and falling prices of oil all complicate the work of central banks and reveal the many tight connections. – YaleGlobal