The recent discussions surrounding the global stock market decline have brought to light the idea of the Fed or Federal Reserve, doing emergency rate cuts.
While there were no emergency rate cuts planned or have been initiated as of the writing of this post, Confidence is high on the street that the Fed will lower interest rates in September. As of Aug. 8, reported by Bankrate.com, the CME Group FedWatch tool, which is based on the paper contract prices of the federal funds futures, projects a 100 percent likelihood of a rate cut occurring.
Inflation is down and unemployment is up, two solid reasons for the Fed to lower rates at its next meeting, fulfilling their dual mandate by Congress. But what does this mean between those who save, and also those who borrow money?
For those not in the know, you can check out this post that gives you a brief explanation and how they operate:
James Reade
For the savers.
For individuals who do save money on the side(like me), the options for good high-yield certificate of deposits, savings accounts and money market accounts, which are subject to fluctuations based on the federal funds rate established by the Federal Reserve, could experience a decrease in yields or a gradual reduction even before the Fed's meeting on September 18th.
Not to mention possible future cuts of the funds rate in later fed meetings and also next year as well depending on the rate of cuts they push out. So far, it sounds like bad news already for those who have been stashing their money away in their high-yielding accounts and money market funds for some time. But, it's probably not a bad idea to look into stashing some of the extra money into investment vehicles like stocks, mutual/index funds, or ETF's. As there will be less of a reason to let cash settle in a savings account that'll be yielding you less than before the potential cuts.
For the borrowers.
For borrowers, or those who have credit cards, personal installment loans or any kind of private debts you owe to a creditor, this is probably good news since this will slowly reduce your cost to service such debts. Of course, you can still pull out a decent 0% APR Balance Transfer Card from places like Wells Fargo or Citibank to consolidate your debts into one that there's no interest to pay for a certain period of time.
In general, because of the role that the Federal Reserve plays as the central bank of the United States, cutting policy rates will have some influence, that you may or may not notice and they don't always get it right when it comes down to either tightening or easing the economy.
Credits to:
