On September 18, 2024, the Federal Reserve cut its benchmark interest rate by 0.5%, the first reduction in four years. After a period of consistent rate hikes aimed at curbing inflation, the Fed now sees inflation slowing and shifted its focus toward stimulating the economy and supporting job growth.
This rate cut affects both borrowing and saving. Lower interest rates mean cheaper financing options for things like car loans, mortgages, and credit card debt, giving consumers and businesses access to more affordable credit. However, savers might see their returns from savings accounts, certificates of deposit, and bond yields decline.
More rate cuts are expected, but the speed and scale will depend on inflation and the job market. While the Fed is likely to continue easing rates to support the economy, how much further they will go remains uncertain. Balancing a strong economy and making inflation behave is a tight rope walk.
We came across an interesting article posted by Visual Capitalist yesterday that shows how the stock market ( specifically the S&P 500 ) has historically reacted to interest rates cuts. The full article can be found here.
The summary is this: dating back to 1973, the market averages a -1.1% decline in the first 90 days, a +4.4% return the first 6 months, and a +4.9% return the first year. Overall the market has reacted positively nearly 70% of the time. However, we all know that past performance isn't an indicator of future success. Either way we found this interesting and wanted to share.
You probably won't find or notice large savings with this initial interest rate cut, except for refinance as large debt ( like a recent mortgage ). Credit card, auto, personal loan rates will drop some if you are looking for new or refinancing options, but it will take time for the ripple to move and is also dependent on future cuts.
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All the best,
Your Wela Financial Advisory Team
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Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. This article and images may have been enhanced by utilizing artificial intelligence (AI). Brent Forrest & Associates, LLC dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Wela may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions
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