{"id":6492,"date":"2019-10-07T14:01:18","date_gmt":"2019-10-07T19:01:18","guid":{"rendered":"https:\/\/schenkelberg.investments\/?p=6492"},"modified":"2019-10-07T14:01:32","modified_gmt":"2019-10-07T19:01:32","slug":"tariffs-and-interest-rates-why-do-they-matter","status":"publish","type":"post","link":"https:\/\/schenkelberg.investments\/?p=6492","title":{"rendered":"Tariffs and Interest Rates. Why Do They Matter?"},"content":{"rendered":"\n

Market movements in\nthe third quarter of 2019 were once again dominated by news surrounding tariff\nwars and the interest rate set by the Federal Open Market Committee (FOMC).\nLet\u2019s talk about how each of these can affect investment markets. Prices that\ninvestors pay for investments are determined by how much investors believe the\ninvestment is worth. These prices move throughout the day based on different\ndeterminations of value that may be affected by an investor\u2019s perception of\nfuture opportunities and what the investment is worth right now. There are many\ndifferent news items that can impact the price for a specific investment or the\nentire investment market. Tariffs and the Fed Funds rate are a couple items\nthat significantly move prices across the entire investment market. Why does\nthis happen?<\/a><\/p>\n\n\n\n

Tariffs<\/strong><\/p>\n\n\n\n

A tariff is\ndefined by Investopedia as \u201ca tax imposed by one country on the goods and\nservices imported from another country.\u201d The benefits and drawbacks of using\ntariffs have been debated for centuries. On August 1st<\/sup>, President\nTrump signaled that he would hike tariffs on Chinese imports in August after\ntalks failed to deliver a trade deal. According to U.S.A. Today,<\/em> the threatened tariffs amounted to a 25% tariff (or\ntax) on $250 billion in Chinese imports plus a 10% tariff on $300 billion in additional\ngoods. <\/p>\n\n\n\n

Tariffs have\nbeen used in trade wars throughout history in an attempt to impact a competitor\ncountry\u2019s economy or to protect businesses in the home country. President Trump\nis initiating tariffs based on the attempt to push American consumers to favor\ngoods made in America versus goods made in China.  <\/p>\n\n\n\n

Markets have\nbeen reacting negatively to these tariff threats due to fear that it could lead\nto higher prices for American consumers because they would not have access to\nlower-cost Chinese goods or would have to pay more for the same goods.\nAdditionally, there is historical evidence that less competition for goods can\nlead to lower efficiency and higher prices in general. Although tariffs may\nhelp American businesses sell goods, this environment could lead to slower\neconomic growth with less consumer buying activity.<\/p>\n\n\n\n

Interest\nRates<\/strong><\/p>\n\n\n\n

The FOMC is\na U.S. committee designed to act on its congressional mandate to promote\nmaximum employment, stable prices and moderate long-term interest rates in the\nU.S. economy. The primary tool it utilizes at this time is the Fed Funds Rate,\nwhich is a target rate at which depository institutions lend reserve balances\nto other depository institutions overnight. This overnight lending activity is\nkey to the functioning of our banking and lending systems across the U.S. <\/p>\n\n\n\n

This lending\nrate affects banking institutions and in turn affects the rate at which lenders\nare willing to lend money to businesses and consumers. The lower the interest\nrate, the more desirable lending activity will be for businesses and\nindividuals. To help ease economic activity and promote lending surrounding the\nfinancial crises, the FOMC lowered interest rates over time from 5.25% on\nSeptember 18, 2007, to 0.0% on December 16, 2008. On December 17, 2015, the\nFOMC began slowly increasing the rate until its recent peak of 2.5% on December\n20, 2018. <\/p>\n\n\n\n

In 2019, the\nFed Funds Rate target has been lowered twice and now sits at a target range of\n1.75-2.00%. By lowering the rate, the committee is seeking to stave off\nnegative effects of a slowdown in corporate earnings growth and the impact of\npotential tariffs by promoting lending activity and access to lower cost funds.<\/p>\n\n\n\n

Tariffs and\nInterest Rates Working Together<\/strong><\/p>\n\n\n\n

Interestingly,\nthe combination of tariffs and the Federal Funds Rate is important. The\ncompetitive market for American goods and access to affordable lending can help\nAmerican businesses maintain their employees and seek additional opportunities\nto expand. Consumer demand remains strong, aided by an extremely low\nunemployment rate and improving productivity at U.S. businesses. Every little\ninput can matter to future growth, and tariffs and interest rates are no\nexception.<\/p>\n","protected":false},"excerpt":{"rendered":"

Market movements in the third quarter of 2019 were once again dominated by news surrounding tariff wars and the interest rate set by the Federal Open Market Committee (FOMC). Let\u2019s talk about how each of these can affect investment markets. Prices that investors pay for investments are determined by how much investors believe the investment […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[119,123],"tags":[],"class_list":["post-6492","post","type-post","status-publish","format-standard","hentry","category-market-commentary","category-market-performance"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7kXxe-1GI","jetpack-related-posts":[{"id":6218,"url":"https:\/\/schenkelberg.investments\/?p=6218","url_meta":{"origin":6492,"position":0},"title":"Market Update. 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