Wednesday was a major inflection point for economies and markets around the world.  After a period of rising interest rates that started at the beginning of 2022, the Fed cut interest rates 0.50% on Wednesday, signaling that their focus has now shifted from lowering inflation to supporting the jobs market.  Markets rallied on the news of lower borrowing costs.

The Fed expects to cut rates another 0.50% to 4.50% before the end of the year.  Their plans, as of today, are to continue lowering rates next year to 3.25% and stopping at 3.00% for 2026 and beyond.

As the Fed continues to cut interest rates, consumers should see borrowing costs decline, but not very quickly.  Eventually, credit card interest rates should fall as well as auto loan rates.

What about mortgage rates?  While the Fed rate does influence mortgage interest rates, the relationship is not as strong as it is with short-term rates, like credit cards and auto loans.  Looking at mortgage rates, we can see that they’ve been falling all summer in anticipation of upcoming rate cuts.

As borrowers are expected to get some relief, savers are facing lower yields for savings accounts, money market funds, and CDs as rates move lower.

 

Have a great weekend.

 

Jack C. Harmon II, CFP^®, CIMA

Principal, Harmon Financial Advisors

Registered Principal, Raymond James Financial Services

 

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