Why the Fed’s interest rate move matters

The Federal Reserve, the US central bank, is expected to cut its main interest rates at a meeting in Washington on Wednesday.

Growth has slowed, though there does not appear to be an imminent danger of the economy actually contracting. That said, there have been some warning signs in the financial markets that often do signal a recession is not that far away.

Cuts in interest rates in any country tend to make its currency lose value against others.

That is because lower interest rates mean there is less money to be made by investing in assets that yield interest, such as government bonds or debt.

When an economy as large as the US changes its interest rates, it is possible for the movement of investment funds to be disruptive.

This time, because interest rates are likely to be cut, it is more likely that money will go into emerging economies. That can sometimes lead to financial instability (or unsustainable bubbles). That is not an immediate concern now, but it is a reason why countries need to keep a careful eye on what happens in the US.

Article URL : https://www.bbc.com/news/business-49733118?intlink_from_url=https://www.bbc.com/news/world/us_and_canada&link_location=live-reporting-story

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