Fed Signals More Interest Rate Cuts Could Be Coming

This doesn’t really come as much of a surprise, but Federal Reserve chairman Ben Bernanke signaled that a sizeable interest rate cut could be on its way when the board meets on Mar. 18.

Even with all the rate cuts the Fed has already made, and the $168 billion economic stimulus package that was recently passed, the economic picture for the U.S. still seems bleak. Yet the government seems optimistic that they will be able to stop the looming recession. I’m not sure if they are in denial, or if it is just a public relations ploy, but I don’t see them standing much of a chance of preventing it.

This financial storm (of sorts) has been in the works for some time, and short of completely destroying the dollar I’m not sure how they are going to avoid it. Now, if they were to destroy the dollar and let inflation run wild they might technically be able to avoid a recession; however, there will be costly repercussions stemming from those actions. They have done a decent job of devaluing the dollar, but it is going to take a lot more to accomplish what they want.

This is an election year and the Republicans don’t want to be in the midst of a recession come voting time; that would be a killer for the party. The Democrats have been attacking Bush’s policies for some time, and will not hesitate to redirect their efforts onto McCain who, by the way, is being backed by President Bush. A full on recession will only give the Democrats more fuel to add to the fire. Needless to say, President Bush will do whatever it takes to at least delay this recession, and will put as much pressure on Bernanke and the Fed as he can to do so.

My two cents for investors is to plan for a recession and get out of the dollar. One of two things is going to happen: either we are going to have a recession or the dollar is going to tank, and it is likely that both will happen to varying extents. Moving your investments, or at least heavily diversifying, into assets based in other currencies can help protect from both. The more uncorrelated the foreign market is to the U.S. the better, just make sure to diversify in order to protect yourself. Read our Top Recession Investments article for some other ideas, and if you are looking to buy foreign real estate you should make sure to read our write-up on HiFX, which does currency exchanges and transfers.