Lower interest rates could have ripple effect - Trade Only Today

Lower interest rates could have ripple effect

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Will the Fed's rate cuts work?

This is the million-dollar question the boating industry now struggles with in an economy that some say is headed for a recession. 

The Fed obviously considers recession a threat, because it’s cut a key interest rate by 1.25 percentage point in the last two weeks — an unusually strong response.

The Fed’s move does not directly affect long-term loans, such as many boat loans, said Donald Parkhurst, senior vice president of SunTrust Bank in Fairfax, Va. But it could have a trickle-down effect. Marine loans, for example, dropped about a quarter percent soon after the Fed made an emergency three-quarter percent cut last week, according to Parkhurst.

But this doesn’t mean that banks will rush to increase their lending portfolio. According to Fortune, banks like Citi and Bank of American have been boosting their capital cushion for future losses. Setting aside bigger reserves means less money for lending to businesses and consumers.

That's why some economists expect additional rate cuts, which could be a boost for the marine industry.

We’d like to know your thoughts on the lower rates — has there been an uptick in boat sales after similar Fed rate cuts in the past? Will they have an impact this year? How have manufacturers managed their inventory pipelines in previous economic downturns?

-Lois Caliri
Editor

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