And leaves the door open for more cuts if necessary
The Fed met yesterday and today to discuss inflation and the economy. They decided to cut the Fed Funds rate (FFR) by .50% to stimulate a slowing economy. There's a lot of debate as to whether we're in a recession or not. Some pundits say that if the Fed starts to talk about a potential recession that usually means we are already in one.
What does this mean for interest rates?
If you have a loan with a short-term interest rate or a rate based on the Prime index, your rate will be declining. The Prime rate is simply the fed funds rate plus a margin of 3%, currently at 6%. Most home equity lines and some credit cards are based on the prime rate.
Other short term indexes like the 1 month, 3 month & 6 month LIBOR rates will also likely decrease. The decrease may not necessarily be by the same .50% FFR reduction and not as quickly. The 1 month LIBOR typically follows the FFR over time.
For long-term interest rates like the 15 yr. and the 30 yr. fixed rates, these rates will most likely be increasing. The last four rate cuts resulted in higher fixed rates in the subsequent days and weeks. For more information on why this happens read my previous post on Fed Rate cuts.
If Goldman Sachs' predictions are correct, then we may see a few more cuts from the Fed to stimulate the economy even more.
What does all of this mean to you? It means you should schedule your annual review call with us, if you haven't already. Interest rates may rise or they may decline, there are so many factors that go into the supply and demand for long term bonds. Make sure you're ready for the next interest rate decline. Stay up to date with by subscribing to our cashflowcoach blog and attend our next Total Wealth Workshop. We want to be your source of valuable information and financial education.
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the Cashflow Coach
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