by Taylor J. Kovar – CEO / Founder, Kovar Wealth Management
–Hey Taylor – This happens a few times a year—I read about the Fed doing something with rates and it sounds important. I never really understand what it means or how it will affect me. Care to explain?
–Hi Josie – You’re not alone! There’s always a lot of fanfare when the Fed makes any sort of announcement, but then what? What does it mean for your paycheck and your daily expenses? Aside from a quick bump in the stock market, there’s nothing you’ll feel immediately on account of the Fed predicting rate cuts, but there are things to be thinking about for the coming year.
- Interest rates coming down. If the plan holds to drop rates throughout 2024, people will finally see some relief on the interest they’re paying. Home sales just had their worst year in almost three decades, largely because prices kept going up while interest rates and inflation soared. Lower borrowing rates will provide a lot of relief for prospective homebuyers, and it will also help with car payments and any other type of loan. It’s important to remember how interconnected all the various types of spending are; when corporations start saving money on bank loans, those savings often ripple out to consumers.
- Economy heating up. It would be great if interest rates could always be low, but that wouldn’t be sustainable in the long run. Economic growth has to be tempered occasionally to curb inflation, and that’s what the Fed has been doing over the last year and a half. Now, after signaling that rates will reverse course, that’s an indication that we can expect to see growth ramping back up in the short term. Depending on your line of work, you may or may not see or feel these benefits directly. From an investment standpoint, economic growth can lead to surging markets and more blossoming retirement accounts.
- Inflation on the mend. Our current Fed, Jerome Powell, has been very clear that his primary concern over the last two years was dealing with inflation. Even as people grew concerned about rate hikes hurting the economy, he stayed the course in hopes of avoiding the type of inflation that could cause a more long-term depression. So, if he’s willing to signal an end to these rate hikes, that means he’s feeling confident we’ve made it to the other side of a years-long battle with inflation. That doesn’t mean prices will drop across the board, but competitive pricing should start moving things in the right direction.
We’re always riding different economic waves, so the upcoming rate cuts are just one moment in that ongoing ebb and flow. It’s a positive moment, so keep on working and earning and investing and enjoy the fruits of your labors. Thanks for the question, Josie!
