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BUDGETING
Making the Cut
Everyone hears about “interest rates cuts” but what does this actually mean? More importantly, should you change your money strategy?
The US Federal Reserve lowered its benchmark rate for the first time since December which has left people scratching their heads.
So today, I’ll break down what the Federal Reserve is, why it cut rates, and what moves you might want to consider.
Fed Explained
The Federal Reserve (or “the Fed”) is the central bank of the United States. Its job is to keep prices stable and employment strong by regulating the money supply and setting interest rates.
These Fed decisions have major ripple effects across the entire economy.
Rates Slashed
The Fed recently lowered interest rates and signaled more cuts may be coming. While inflation is still elevated, signs of a weakening job market pushed them to act.
By cutting interest rates, borrowing becomes cheaper. This encourages spending and investing which in theory helps support the softening job market.
More specifically, the federal funds rate was cut. This is the short-term rate banks charge each other for overnight loans. This sets the tone for the economy as a benchmark influencing mortgage rates, credit cards, and even the APY on high yield savings accounts.
What’s Next?
You typically don’t need to make major changes every time the Fed makes moves, but here are two options some people consider during rate cuts:
Lock in CD Rates: HYSA APYs fall when the Fed cuts rates, so it may be wise to look into CDs where you can lock in higher rates.
Refinance Debt: Mortgage and auto loan rates may decline after rate cuts, so refinancing could lower your monthly payments.
Delete the Spreadsheet
Instead of juggling spreadsheets, I recommend the free Personal Dashboard from Empower. It pulls everything into one place (including your investments) so you can automatically track your net worth.
The Bottom Line
Rate cuts don’t require an immediate panic or change in your money strategy. Still, it’s helpful to understand why they happen and how to anticipate any potential ripple effects.
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Talk Soon,
Steve
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Budgeting is essential, but tracking your net worth could be even more important. Check out my review of the Empower Personal Dashboard to track your net worth (for free).
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Disclaimer: The content provided in this newsletter is for informational and educational purposes only. It is not intended to be a substitute for professional financial advice. Please consult with a financial advisor before making any financial decisions. This newsletter may contain affiliate links, which means I may earn a commission if you make a purchase through these links, at no extra cost to you.
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