The word on the street and from Jerome Powell is that the Fed is likely going to cut rates this month. Here’s what it could possibly mean for you.
A change in course
There is talk of a pending rate cut of 0.25 to 0.5% at the September Federal Open Market Committee meeting to occur later this month.
The Fed has two main goals: maintain full employment and keep prices stable. The last move the Fed made was a rate hike in July of 2023. The intention was to prevent the economy from overheating. Now that the job market is showing signs of weakness, it is expected that they will shift to lowering rates instead of fighting inflation.
What it means for the markets
There are many factors that dictate what the impact of rate changes will be on the stock and bond markets. In a broad sense, a rate decrease generally elevates long-term bond prices while putting pressure on short term rates. As consumption is spurred by looser credit, lower rates may provide a lift to the markets. However, securities price changes can never be predicted with accuracy and what has happened in the past is never a precursor for changes to come.
Should you take any action?
However, rather than attempting to predict the outcomes of rate cuts, it is better to make decisions with a long term, multi-cycle perspective in mind.
All risks, including market volatility due to changes in macroeconomic variables, must be managed by prudent asset allocation that lines up with your risk tolerance and long-term goals. If you would like to discuss your portfolio and financial plan, please let us know.
-Judd