Will the Fed's rate cut matter?

Yesterday the Federal Reserve cut the federal funds rate from 2.50 to 2.25 percent.  Financial markets reacted adversely, perhaps because they anticipated a larger cut or the prospect of more cuts in the future.

But what economic impact will this cut in interest rate have?  Chicago Booth economist Austan Goolsbee questions whether it will do much at all.  Lower interest rates historically stimulate household purchases of durables (furniture, appliances, cars, homes) and corporate spending on investment.  Goolsbee points out that interest rates have been at historically low levels for 10 years, so there is not likely to be much pent-up demand for durable goods.  Also, rates cannot fall much further from their current rates; zero is a lower bound!  Banks are not going to pay borrowers interest.  

Long term rates are just as low as short term rates, indicating the market expects interest rates to remain quite low.  Proponents of the rate cut argue that slower growth in Europe and China dictates stimulus in the US.  However, the rate cut also led to the dollar raising in value to its highest level in two years (not what we would have expected, by the way; lower interest rates usually imply a declining currency value).  If this holds up, expect net exports to decline which will further slow growth.  Also the interest rate cut is bad news for savers.

Two members of the Fed's Open Market Committee voted to not make any change in interest rates, believing that an economy with 3.5 percent unemployment does not need any more stimulus.  If Goolsbee is right and the rate cut does not offset the drag from trade wars and slower growth in other countries, it will be interesting to see if the Fed doubles down on yesterday's action.