What Do Record Auto Sales Mean for Federal Interest Rates?

While most observers have taken the news that the major United States automakers are enjoying record monthly sales as a sign of the growing strength and continued improvement of the U.S. economy, there are some other effects that should be considered before getting overly excited. Yes, the dollar has regained some of its strength and this has buoyed concerned consumers, and declining gas prices have certainly encouraged the increase in car sales, but it is important to avoid overlooking the fact that this perceived consumer strength will very likely lead the United States Federal Reserve to consider raising interest rates.

It is for this reason that the true causes of the surge in auto sales should be evaluated more closely to determine whether the increase is indeed due to the current strength of the dollar and not simply a confluence of factors that boosted sales above the norm but do not hint at sustained success. The fact that, for example, many regions throughout the country have suffered through extended winters may have led to many potential buyers delaying their purchase. After all, automakers are coming off of a very poor sales month in April, so perhaps this recent May increase may be nothing more than a product of buyers waiting out the inclement weather before investing in a new vehicle.

The fact that the financial crisis kept many consumers away from the automobile industry for many years may also have something to do with this, and it is fair to say that consumer confidence is not exactly at an all-time high within the auto industry. To draw any sweeping conclusions over the strength of the entire United States economy due to one very strong month of sales following a very poor month seems to be a potentially significant error. This is especially true if the Federal Reserve is indeed considering a raise in interest rates simply due to a momentary increase in one sector, however important or sizable that sector may be.

Ultimately, consumers should be pleased that auto sales are on the rise, but the long-term health of the auto industry is hardly secure, and the idea that the automobile sector should serve as any reflection of the United States economy is incredibly flawed. The dollar may be stronger and more consumers may be buying cars, but to say that the economy is fully recovered and thriving to the point in which interest rates should be raised is a frightening proposition.

Thawed Relations With Cuba Bound to Bring About Positive and Long-Term Economic Change

Much has been made of the long-overdue thawing of relations between the United States and Cuba, and the matter has remained a somewhat surprisingly contentious issue among parties on both sides. This is going to be a long process of normalization due to the resistance that is still apparent on each side, but the economic changes that should come from all of this ought to prove overwhelmingly positive in the long run. It should be plainly evident, however, that the majority of people on both sides of this issue see an economic opportunity in Cuba that should prove mutually beneficial for both nations. The issue is how to optimize these opportunities in a way that equally satisfies the leaders of both the United States and Cuba.

The trade embargo has had an undeniable effect on the economy of Cuba, but the point of the embargo was to stimulate the type of political change that would push Fidel Castro and his regime out of power. The embargo and the other financial sanctions imposed upon Cuba have not been able to accomplish this despite the effects on Cuba’s diplomatic relations with other countries, and the political impact on the perception of the United States in Latin American countries has been too great for this to continue to go on. Improved relations and, eventually, the lifting of the trade embargo, should aid in reducing the anti-American sentiment that has spread throughout Latin America.

Private enterprise has been opening up in Cuba since Fidel’s brother, Raul, assumed power in 2008, but the thaw in relations between the island nation and the United States should bring about more opportunities for growth while simultaneously loosening the grip of the Castro government’s state monopolies. The issue facing Cuba and the Castro regime, however, is determining how increasing economic liberalization will affect the regime’s ability to retain power. This is likely the reason that Cuba has thus far focused on improving diplomatic relations before discussing broad economic issues, as there is a chance that rebuilt relations could accomplish what the sanctions had initially intended by pushing the Castro regime out of power in Cuba.

As political fodder, the upcoming Presidential election should see plenty of discussion regarding relations between the United States and Cuba. From a purely economic standpoint, a thaw would be mutually beneficial for both countries, as Cuba would undoubtedly see its economy improve tremendously while the United States could enhance its political standing among the Latin American nations in which there has been a growing sentiment of anti-Americanism.