Low interest rates: what happens if recession strikes?

In a recession Central Banks cut interest rates to stimulate growth - it has historically been regarded as one of the most powerful monetary levers.  By way of example - in the last 3 US recessions rates were cut by 6.75%, 5.50% and 5.12% (source:  The Economist).  With the Fed rate at 0.50% there isn't much room (really no room) to cut rates.   

Expectations are for higher rates in the US.   Markets imply a 20% chance of US rate rise in September, 60% by December and 100% by August 2017 (source:  Westpac).  A market shock causing a US recession is is very unlikely - but not impossible.  If a US recession were to occur, rates cannot be cut to stimulate growth.  This would likely make any US recession deeper and a recovery slower.  Let's hope the US stays on a growth path and we don't need to test this....  

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