The US Fed once again cut rates this week, by 25 basis points, to bring their rate to 4.25 percent, and then injected a further $41 billion into the money supply the following day. Meanwhile, US GDP rose 1.0 percent in the September quarter on a seasonally-adjusted rate, resulting in a slight acceleration in year-on-year growth, to 2.2 percent from 2.1 percent in the June quarter.

Citing the usual suspects of the slowing housing market and the associated illness in the financial markets, the Fed nevertheless cautioned against possible increases in inflation later on in the year. Its chief concern, as in most economies around the world no doubt, is rising energy prices. Nevertheless, the inflationary risks were adjudged sufficiently low for the reduction to go ahead.

The cut follows on from an even larger one of 50 basis points just six weeks ago, while the addition of $41 billion more into the financial system is the largest shot in the arm since the September 2001 terrorist attacks.

At the same time, US GDP is on the up again, driven by domestic consumption and export growth that has benefited from a US dollar which has been weak for some time now. While investment has fallen 5.1 percent year-on-year, expect the recent drops in the federal funds rate to reverse that trend, somewhat at least, in the coming months.

Once again we must ask what all this means for New Zealand. With the federal funds rate now just over half the OCR (currently at 8.25 percent), speculative investment in New Zealand becomes an even more attractive option. If other central banks follow the US rate trend down, as they usually do, this will only exacerbate the situation. The European Central Bank reviews their rate next week.

The likely result is the continued march upward of the NZ$, and, once again, a delay in the bursting of the spending bubble, with easy (or at least easier) credit available as a result of money flooding into the country.

In addition, while lower interest rates in the US are likely to spur capital stock investment, high interest rates in New Zealand are unlikely to encourage private capital investment, or foreign direct investment from overseas.

At least the high NZ$ is mitigating the price of imports – petrol included.