MAD Dog on Money: 5/16/19

Projected Interest Rates and the Federal Reserve Bank

  • MDOM has postured in recent issues that we think the Federal Reserve will hold the prime rate steady for now. This has taken place – and we project no changes near-term.
  • Core inflation is at 2.0 percent. That’s right at the Fed’s target of 2.0 percent. Until a trend has been established to their satisfaction, they intend to do nothing. Of course, inflation has been on the rise recently, and we will watch this closely.
  • One of the most important responsibilities of the Fed is setting the federal funds target rate, which is the interest rate banks charge each other for overnight loans. The federal funds target rate serves as a benchmark for many short-term interest rates, such as rates used for savings accounts, money market accounts, and short-term bonds. The target rate also serves as a basis for the prime rate.
  • To stimulate the economy, the Fed lowers the target rate. If interest rates are low, the presumption is that consumers can borrow more and, consequently, spend more. For instance, lower rates on car loans, home mortgages and credit cards make them more accessible to consumers.
  • On the other hand, if consumer prices are rising too quickly (inflation), the Fed raises the target rate, making money too costly to borrow. Since loans are harder to get and more expensive, consumers and businesses are less likely to borrow, which slows economic growth and reels in inflation.

Proposed State of Ohio Budget: Tax cuts for Individuals, partially funded by decreasing the small business state tax exemption on business income

  • Every Ohioan making less than $88,800 would see their state income taxes cut, which would be paid for in part by eliminating other tax breaks that generally favor businesses and wealthier state residents, under a state budget proposal unveiled by Ohio House Republican leaders.
  • The budget plan would eliminate Ohio’s second-lowest and third-lowest tax brackets. That means people who make $22,499 or less would no longer have to pay state income taxes. Ohioans who make $22,500 to $88,800 would see their taxes cut by 4.7%.
  • The tax cut would be paid for, in part, by scaling back a state business tax exemption so that it applies to the first $100,000 of business income, rather than the first $250,000. This means that business owners that have $250,000 or more in net income will pay tax on an additional $150,000 of income.

This is just a proposal. The Dog will keep an eye on the final budget plan and will relay info when it is available.

Going back to my cage….bark at you soon.