Interest Rates Cuts and Financial Markets

The Federal Reserve cut its historically high benchmark interest rate of 5.3% by a half percentage point in September. This was the first interest cut since March 2022. The Fed hiked interest rate 11 times between March 2022 and July 2023. The Fed’s benchmark rate influences the rates that banks set on consumer products, such as saving accounts, certificates of deposit (CDs), and credit cards.  A lower benchmark rate means lowering costs for banks, and consequently, lower borrowing costs and lower annual percentage yield (APY) on consumers saving accounts.

The post-pandemic inflation has its peak of 9.1% in mid-2022. This was the highest inflation in four decades. The Labor Department showed that consumer prices rose 2.5% in August from a year earlier, and down from 2.9% in July of this year. It seems that inflation is on a path towards 2%, the Fed’s target level.

It is expected that the Fed’s benchmark rate will continue to decline. While this is good for those who have credit card debt or planning to buy a home, it could affect negatively saving accounts. Taking advantage of the long run of high interest rates and putting some money away in CD’s could be a good short-term saving strategy. CDs utilize fixed APYs, meaning your rates won’t change once you get them set up.

 Volatility in the financial markets is very common during presidential elections. Rising global tensions also contribute to markets volatility. If you’re investing long-term, you may want to avoid reacting to any short-term market changes. Some investors might consider underweighting stocks that could be affected by policy shifts and overweighting more defensive sectors (for example utilities and consumer staples) and securities such as bonds.

 To schedule a free portfolio review, please contact me at (310) 256-4881. We are approaching busy holiday season, and the month of October could be a good time for many to start reviewing their current financial plans and start planning for the new year.