According to BlockBeats, on September 27, Wall Street Journal reporter Nick Timiraos, known for his insights on the Federal Reserve, discussed the potential for the Fed's rate cuts to achieve an economic soft landing. He emphasized that this outcome depends not only on the extent of economic weakness within the United States but also on whether lower borrowing costs can stimulate new investments and spending to counteract any economic slowdown.
Timiraos highlighted that even with a reduction in interest rates, many businesses and households might still be reluctant to borrow. This hesitation stems from the fact that they would face higher rates compared to their existing fixed-rate loans, which were secured at lower rates several years ago. If these borrowers or businesses are unwilling to take on new loans, the effectiveness of rate cuts in boosting the economy could be limited.
He further pointed out the issue of the difference between the marginal cost of debt, which is currently decreasing, and the average debt rate, which may continue to rise. This is particularly relevant for borrowers who locked in low rates before the Fed began its rate hikes. Despite the Fed's recent rate cuts, the average debt rate in many sectors remains lower than the new marginal cost of credit, due to the unprecedented low borrowing costs over the past decade followed by rapid rate increases.