The Federal Reserve is preparing to cut interest rates as early as next month. This could bring relief to people with mortgages, credit cards, and car loans. However, there is still uncertainty about how deeply the Fed might cut rates when it meets in mid-September.
Judging from the commentaries of the last 24 hours, it is proving convenient for quite a few to cite "positioning" as the major cause of the recent market volatility.
This enables Wall Street to describe the stock market pullback as "healthy;" and it allows the Fed to deflect…— Mohamed A. El-Erian (@elerianm) August 7, 2024
Many consumers are looking for financial stability in the short term. They also want to benefit from lower borrowing costs in the medium to long term. Balancing this act isn’t easy, according to Bankrate senior economic analyst Mark Hamrick.
The ongoing debate on Fed policy is focused on whether the Fed should cut inter-meetings or in September, and by how much.
It needs to go beyond this and also focus on the opportunity Chair Powell has at Jackson Hall to regain control of the narrative and anchor forward policy…— Mohamed A. El-Erian (@elerianm) August 6, 2024
“We should hope for the best,” he said, but “prepare for some possible outcomes that are less than optimal.”
Current Market expectations for Fed Rate Cuts…
-Sep 18, 2024: 50 bps cut to 4.75-5.00%
-Nov 7, 2024: 25 bps cut to 4.50-4.75%
-Dec 18, 2024: 25 bps cut to 4.25-4.50%
-Jan 25, 2025: 25 bps cut to 4.00-4.25%
-Mar 19, 2025: 25 bps cut to 3.75-4.00%Video: https://t.co/PU3gn1fTbD pic.twitter.com/xuqDaimCyG
— Charlie Bilello (@charliebilello) August 7, 2024
Experts suggest taking advantage of high-yield savings accounts now. Most analysts don’t expect the Fed to cut its benchmark rate more than 0.5 percentage points initially. This means high-yield savings accounts are likely to remain appealing.
Bill Dudley: The Fed needs to get interest rates to a neutral setting, and that is probably 150-200 bps below where rates are presently set https://t.co/eyTbprXe7f
— Nick Timiraos (@NickTimiraos) August 7, 2024
However, several experts cautioned against over-relying on high-yield CDs. If you’re close to retirement or have a fixed income, a short-term CD might be an attractive option. But cashing out a CD early usually entails a penalty.
Now is also the time to pay down credit card balances. Chipping away at your debt and improving your credit score can position you to take advantage of better borrowing conditions. Simply asking about discounts and special promotions can help, especially when the central bank lowers interest rates.
It might seem counterintuitive to buy stock in the wake of market fluctuations.
Fed prepares for upcoming rate cut
But many financial advisers live by the “buy low, sell high” mantra.
If your experience as an investor is limited, consider opening an investment account and starting small. Patience is key for inexperienced investors. Experts advise keeping a steady, long-haul approach to investing.
If you’re investing for retirement, focus on what the next five, 10, and 20 years look like. With 30-year fixed-rate mortgage rates averaging 6.55%, now is a great time for existing homeowners to scope out their refinancing options. Even if you’re in the middle of a sale process, it’s worth planning ahead to see if you can adjust the mortgage rate once rates fall.
However, avoid looking only at interest rates to time a home purchase. Homebuying demand could jump after a rate cut. Focus on your individual needs, desires, and what you can afford.
Although auto rates might not rapidly decline as soon as the Fed starts cutting, consumers can still find deals. Discounts typically pick up in August and September as dealers clear lots for new models. Better prices are also likely for hybrid cars and secondhand vehicles.
Delaying a car purchase can be costly, especially if it means missing work due to a lack of transportation. Focus on what you can afford right now and make a pragmatic decision. By following these steps, you can better position yourself financially as the Federal Reserve’s anticipated interest rate cuts loom on the horizon.
