This is a new installment in an ongoing series where Marc Bautis, Wealth Manager and Founder of Bautis Financial, comments on hot topics in the financial industry.
The Federal Reserve recently voted to cut interest rates, shaving 0.5% off the benchmark.
Markets rallied exuberantly at the news, reaching new heights.
Why Did the Federal Reserve Cut Rates?
With inflation on a strong downward trajectory and concerns about economic weakness rising, the Fed clearly decided now was the right time to cut.
The size of the rate cut was a surprise to many, who expected a quarter-point cut.
Some analysts believe lowering interest rates will lower the risk of a recession and increase the odds of a “soft landing” for the economy.
What Do Lower Interest Rates Mean?
The Federal Reserve is responsible for setting the benchmark interest rate that all other borrowing rates follow. A lower benchmark will reduce borrowing costs for businesses and consumers, helping economic growth accelerate in the months to come.
The chart above shows interest rate trends over the last four years. You can see that while commercial rates don’t change immediately after a rate cut, they generally follow the same trend.
Going forward…
- Mortgages will become cheaper, likely boosting the real estate market.
- Business borrowing costs will drop, giving a bump to industries like technology, which rely on credit to fund R&D.
Historically, stocks have tended to do well when rates drop. However, past performance doesn’t predict the future and there’s no guarantee that equities will follow any conventional path.
Related: Interest Rates Demystified: From Federal Funds to Your Finances
Today’s volatile markets are still grappling with post-pandemic distortions and are dominated by high-flying tech stocks.
What Could Happen Next?
Markets have rallied strongly in 2024, largely on hopes of lower interest rates. Now that the Fed has finally cut rates, it’s likely that traders will turn their attention to other factors.
We expect the presidential election to come into focus as we approach the month of November. Analysts will also be closely reading economic reports for hints about recession risks and economic growth in 2025.
In the meantime, if you have any questions or concerns, we invite you to schedule a complimentary consultation with our team of financial advisors.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend 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 advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.