Monetary policy and its discontents

by Brenon Daly

What if the US Federal Reserve cut interest rates and nobody noticed? Or, worse, what if the central bankers cut twice, and still no one noticed? That appears to be the case as the Fed trimmed its benchmark rate last week for the second time in two months. Following the latest easing, markets gyrated a bit but basically shrugged off the move.

The collective shrug comes, at least in part, because the central bankers are looking to solve a problem that doesn’t really exist. At least it’s not a problem that’s weighing heavily on US businesses. In a summer survey of roughly 1,100 North American business employees by 451 Research concerning a host of business considerations as well as overall macroeconomic outlook, interest rates and the related concern of credit availability barely merited a mention.

Specifically, respondents to our Voice of the Enterprise: Macroeconomic Outlook survey didn’t even rank interest rate worries among the top five threats to sales at their companies. Instead, labor shortages and trade wars were overwhelmingly cited as the main headwind to business right now. Three times as many survey respondents indicated that those two separate concerns are weighing more on sales right now than interest rates.

Most of the pressing problems that businesses articulated in our survey fall a bit outside the realm of domestic monetary policy. Even an area where the Fed does have influence, our survey respondents don’t necessarily see a problem there: credit is flowing freely, according to their view from summer. Just one in 20 respondents (6%) said it was harder for their company to borrow money now than it was three months ago.