Lowering Interest Rates: Good for the Economy and the Markets?

5
Oct

Lowering Interest Rates: Good for the Economy and the Markets?

Interest rates can positively or negatively affect the U.S. economy, the stock markets, and your investments. When the Fed changes the Federal Funds Rate (the rate at which banks can borrow money to lend to businesses or you), it creates a ripple effect. In this article we take a look at how lowering the interest rate can impact you.

Lowing interest rates are a sign of a weakening U.S. economy and may not be enough to stimulate corporate earnings or increase the share prices of the investments held in your portfolio.
The raising and lowering of interest rates play a role in stimulating or slowing down the economy. In theory, the lowering of interest rates should help boost the U.S. economy by encouraging borrowing and spending. When interest rates are low, consumers and businesses are more willing to make big purchases. Higher interest rates slow down borrowing and spending and restrict the flow of money into the economy.

Who Does it Effect?

Both scenarios reflect the performance of the stock market and your investments. If you have fixed-income investments, the teeter-tottering of rates can negatively impact your retirement portfolio. In today’s economic environment, The Fed is lowering interest rates to stimulate the economy and shorten our current recession.

Lowering Interest Rates History

Historically when recessions end, there is a period of increasing interest rates. When left unchecked can lead to loss of purchasing power for both consumers and businesses. It is this high-inflation scenario that The Fed hopes to avoid as they continue lowering interest rates. These are interest-sensitive products that are impact when interest rates increase.

  • Student Loans
  • Home Mortgages with Variable Rates
  • Credit Card Interest Rates
  • Savings Accounts and CDs
  • Auto Loans
  • Bond prices fall, but income is generally higher

If you have questions about your fixed-income investments or portfolio during this economic environment, please contact our office for a consultation.

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