In late August, the Federal Reserve announced a stunning new policy to keep interest rates low for years, controlling unemployment numbers and likely increasing inflation longer-term than we’ve seen historically. The federal funds rate is important because other domestic and international rates are closely tied to it. It is a primary tool price stabilization (controlling inflation) and ensuring sustainable economic growth – clearly a key lever for economic security with impending recession and many Americans feeling a general sense of instability.
Big picture, this means interest rates will stay near rock bottom in favor of stimulating the economy and getting people back to work in the new post-pandemic normal. According to Investopedia, rate cuts generally favor borrowers but hurt lenders and savers.
So, what does that mean for you and your family?
- Credit card rates – Variable credit card rates could drop. This might be a great time to think about consolidating credit cards, finding a card with super low interest, and paying off those bills completely.
- Savings rates – Savings rates will also likely drop a bit. Make sure your rate is competitive and continue to practice good emergency savings practices even if you’re not racking up a ton of interest on that savings.
- Risk tolerance – You may already have seen 401(k) or other equity fund-based retirement accounts dropping in value. To prevent further loss, check your risk tolerance in these accounts to ensure your revised goals and needs are supported, given the shifting economic circumstances.
- Mortgage rates – Mortgage rates tend to be influenced by the Fed, so it might be a good time to refinance for a lower payment if the monthly budget has gotten tight. Don’t forget to weigh the costs of refinancing when considering this option, though.
In general, this is another sign of the times calling for conservative behaviors and strategic moves like a potential refinance or debt consolidation. Be smart, pay attention to what’s going on in the market, and take a deep breath. We’re all going to make it through together.
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Mission San Jose Mortgage
2111 W. March Lane, Suite B100
Stockton, CA 95207