Business Report: Feds Hint At Interest Rate Cuts Ahead Of Recession Watch
Monday, June 24, 2019
KPBS anchor Ebone Monet and George Belch, Senior Associate Dean of Marketing at SDSU, discuss some of the week’s top business stories.
Q: So what would lower interest rates mean for consumers and the overall economy?
A: The opportunity to have lower interest rates is always welcome. It makes it possible for people to have extra discretionary income. It also means that people who might not have been able to qualify for a loan would be able to do so because of the lower rates.
Q: What's motivating the Federal Reserve to hint at lowering interest rates?
A: What we have going on right now is a little bit of a battle between the Federal Reserve and President Trump. [The Feds] raised interest rates four times last year and the President was very irate about it because he argues there's no real reason to do so. Now they're saying “you know let's get ahead of the game.” The main concern is a recession. Lowering interest rates is a way to head off the recession. Consumer spending is about 70% of our GDP. If we have lower interest rates that's going to make it possible to stimulate the housing market or automotive purchases. I think really what's behind this is that the Fed is saying we want to be proactive.
Q: This week Facebook announced Project Libra which is a plan to bring digital money to millions of people. It's not going to be available for four months. What is it? And how does it work?
A: Cryptocurrency is basically a digital currency, but it's not like a payment system. A lot of people think it's the same as a Pay Pal or a Venmo. That's really not what it is. It's backed by cryptographic protocols. It is not regulated by the government. There is no central authority that controls cryptocurrencies. But in a sense, it becomes a recognized currency that people actually begin to use. The best-known one right now as Bitcoin.
Facebook is part of a consortium that is actually going to be bringing out this new cryptocurrency. They're going to be partnering with about 27 other companies and nonprofit organizations. We have major financial institutions involved with this. We have MasterCard. We have Visa. We have venture capitalists who are involved. They're all going to be putting money in to create funds to back this new currency. Facebook gets all the attention because they will offer it through WhatsApp, through Facebook Messenger, you may even be able to do it through Instagram. But Facebook really has a much broader goal here. They want to bring this to the world.
Q: There is a bill working its way through the California Senate that would limit short-term vacation rentals, like the ones provided by Airbnb, to no more than 30 days out of the year unless a permanent resident is present. If passed, how would this impact the short-term vacation rental industry?
A: What it's going to say is all these coastal communities, San Diego, Pacific Beach, Mission Beach, Del Mar, all of them basically can't do short-term rentals anymore. Some of them like Del Mar already have their own legislation. But for example, the city of San Diego does not. Other coastal communities have just looser regulations.
And this is about saying that the investors have pretty much taken over the properties, and the coastal communities, instead of making them available to renters they are just taking the profits from doing short term rentals which are much more lucrative. So what this is designed to do is to try to put an end to that. The [backer of the bill] is saying we're going to use this as kind of a test market. This only is for coastal cities and San Diego right now. The original goal was to look out at over five years. Now they rolled that back to three years, and they're saying in three years we're going to examine this, and see if it's had an impact and is helping make rentals more accessible.
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