By Danielle Arlotta, CFP®, Lead Planner
Last month, the Fed opted to slash interest rates by 0.5% for the first time in over 4 years. The Fed is the financial governing body of the U.S. For more detail, just watch Hamilton. It’s way more entertaining than me explaining the Fed’s origin story in written form.
So the Fed has what’s called a dual mandate: to achieve “maximum” employment (though the Fed does not like 100% employment because that runs the risk of overheating the economy) and stable prices. There were signs of the labor market weakening which Brooklyn Plans advisors have noticed with more layoffs and longer lag times between jobs among our clients. After signs inflation was cooling, the Fed had room to lower interest rates to keep the economy moving. Lower rates mean more people buy cars and homes, and businesses can borrow more to reinvest and grow. All that activity keeps the economy chugging.
So what does this mean for you exactly? As rates go down, it becomes more attractive to be a borrower and less attractive to be a saver. That doesn’t mean you should take on loans you don’t need, but if you do need them, you can benefit from lower rates. If you’re a saver, those high-yield savings rates we’ve seen recently in the 4.3% – 5% range are not going to last. You may have already received a message from your bank saying your interest rates dropped. If rates continue to drop, sitting on a pile of uninvested cash becomes more of a liability.
Use this opportunity to reasses if your cash could be working harder and reach out to us for a consultation. Prices go up in 2025, so get in now before the holidays sweep you up. 2025 is around the corner!
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