"Feds cut rates" - what's in it for us ?

[Ali Gator]

The big economic news this week is that 'the Feds Cut Rates' - by half a percentage point (which everyone says it's good) - for the first time in four years. We're being told this should 'ease the cost of borrowing' for consumers - from mortgages to auto loans to credit card purchases.

Of consumer borrowing, the only one which effects me (and maybe all of us) is credit card borrowing. I've always found once my financial institution which issues the credit card raises the interest rates on consumers - and consumers continue to use the card with the higher rate - the financial institution does not lower the rate...ever. It doesn't matter that the feds cut the rates for them - the consumer still seems to pay the highest rate.  Or am I wrong ? 

How exactly does this work, and what should I be looking for in the months ahead on my statements ?  (Please note I do not carry a lot of credit card debt, but what I do have I don't want to be paying a high rate). 

[MscleLovr]

Forgive me for stating the rather obvious remedy, which I suspect you know already. 
Never have debt on your credit card(s). It’s a very expensive form of debt.
It’s always best to pay off your balance(s) in full each month.

And to answer your original question, I suspect it means that many of us will have a lower income from our savings. 

Edited September 21, 2024 by MscleLovr

[BuffaloKyle]

11 hours ago, MscleLovr said:

I suspect it means that many of us will have a lower income from our savings. 

Unfortunately that is how it affects me! 

[+ PhileasFogg]

It means very little.  It means more for banks who tend to borrow short (deposits) and lend long (loans) and a flat or inverted yield curve makes that tough. 

if they lower too fast and make inflation sizzle again, it will really hurt mortgage rates since they tend to track with 10Yr UST and it’s the longer rates that tend to reflect inflation expectations. 

[+ SundayZip]

The rate cut is a big deal for people holding bond mutual funds. Bond funds, which are usually pretty stable, lost value in 2022 when interest rates went up. They should recover as rates decrease.  I got lucky because I had moved a lot of my bond investments to individual bonds instead of mutual funds. But the bond funds that I did keep definitely reflect the change interest rates.  

[sutherland]

One of my CDs matured today and, looking at rates today, I've already noticed a decrease.  I have my ladder of 3-month t-bills and CDs ($ from the sale of my apartment 2 years ago) and I'm waiting for the recession to hit to put that money in the market at the low prices.  The recession has been 'just around the corner' for 2+ years!  Any advice from you guys is much appreciated

[+ SundayZip]

On 9/25/2024 at 6:31 PM, sutherland said:

One of my CDs matured today and, looking at rates today, I've already noticed a decrease.  I have my ladder of 3-month t-bills and CDs ($ from the sale of my apartment 2 years ago) and I'm waiting for the recession to hit to put that money in the market at the low prices.  The recession has been 'just around the corner' for 2+ years!  Any advice from you guys is much appreciated

The saying is, "Time in the market beats timing the market." This is a good read:

Market Timing Fails As a Money Maker

WWW.INVESTOPEDIA.COM

---

Market timing is a strategy where investors try to predict market movements in order to make a profit. Read about the risks of market timing.

 

[Arab]

When it comes to the overall scenario of the economy and financial moves, it depends. Stock prices usually rise when rate cuts are seen as a sign of a strong economy or effective management of a soft landing. However, if rate cuts are viewed as a measure to prevent a recession, the outcome can be quite different. This was an amazing summary of the cut and dry effects:

On 9/23/2024 at 6:40 AM, SundayZip said:

The rate cut is a big deal for people holding bond mutual funds. Bond funds, which are usually pretty stable, lost value in 2022 when interest rates went up. They should recover as rates decrease.  I got lucky because I had moved a lot of my bond investments to individual bonds instead of mutual funds. But the bond funds that I did keep definitely reflect the change interest rates.  

I am a registered financial advisor. If you're in need of one or a recommendation, let me know.

[Ali Gator]

Quote

And to answer your original question, I suspect it means that many of us will have a lower income from our savings. 

Lower income from our savings ?  My bank pays less than 2% on my savings account (and they advertise this as a huge deal). What income ?

[+ PhileasFogg]

Have you noticed that since the rate cut, the 10yr treasury is up?

I’m guessing the markets remain concerned about inflation.

[BuffaloKyle]

11 hours ago, Ali Gator said:

My bank pays less than 2% on my savings account (and they advertise this as a huge deal).

Yeesh, you need to get an account with an online bank. Mine pays currently 4.15% and it was just at 4.50% before the fed did their interest cut. I have an account with a physical credit union but transfer the money right to my online savings account.

Edited October 13, 2024 by BuffaloKyle

[SD_Exec]

2 hours ago, BuffaloKyle said:

Yeesh, you need to get an account with an online bank. Mine pays currently 4.15% and it was just at 4.50% before the fed did their interest cut. I have an account with a physical credit union but transfer the money right to my online savings account.

WeBull and Robinhood have better rates than that (for uninvested cash, something similar to a savings account), and they have greatly improved their game lately. I'd recommend.

[mike carey]

On 10/13/2024 at 2:11 PM, BuffaloKyle said:

Yeesh, you need to get an account with an online bank. Mine pays currently 4.15% and it was just at 4.50% before the fed did their interest cut. I have an account with a physical credit union but transfer the money right to my online savings account.

Interesting development from a bank I use almost as much as my main one (it's not an on-line bank but close enough, it has so few branches). For some time they've been paying 4.75% on their savings account and on their transaction account. As a result I've been lax in transferring funds into my savings account. I just received an e-mail from them that from Thursday they will increase the savings rate to 5% and cut the transaction account rate to 2.75% (still a good rate for that type of account). If my discipline in minimising the transaction account balance is anything to go by, they'll probably end up paying less interest in total. The RBA hasn't yet started post peak-inflation cuts to its cash rate from the high of 4.35%, and is still suggesting it'll be next year before it does, but in the last few days the commercial bank prognosticators are starting to predict a 25 basis point cut this year.

[+ PhileasFogg]

13 hours ago, mike carey said:

Interesting development from a bank I use almost as much as my main one (it's not an on-line bank but close enough, it has so few branches). For some time they've been paying 4.75% on their savings account and on their transaction account. As a result I've been lax in transferring funds into my savings account. I just received an e-mail from them that from Thursday they will increase the savings rate to 5% and cut the transaction account rate to 2.75% (still a good rate for that type of account). If my discipline in minimising the transaction account balance is anything to go by, they'll probably end up paying less interest in total. The RBA hasn't yet started post peak-inflation cuts to its cash rate from the high of 4.35%, and is still suggesting it'll be next year before it does, but in the last few days the commercial bank prognosticators are starting to predict a 25 basis point cut this year.

Yes, they may be paying less interest in total, but they may also make even more money off the folks who forget to transfer money to cover checks and accrue overdraft fees.

 

[mike carey]

7 minutes ago, PhileasFogg said:

Yes, they may be paying less interest in total, but they may also make even more money off the folks who forget to transfer money to cover checks and accrue overdraft fees.

 

Cheques really aren't a thing in Australia any more, and this bank doesn't offer them with its accounts, so that won't be an issue. Some people still use them, but very few, and most banks both issue them and accept them, but not all. Shops won't take them and the government will no longer issue cheques from 2028.

[+ PhileasFogg]

14 minutes ago, mike carey said:

Cheques really aren't a thing in Australia any more, and this bank doesn't offer them with its accounts, so that won't be an issue. Some people still use them, but very few, and most banks both issue them and accept them, but not all. Shops won't take them and the government will no longer issue cheques from 2028.

Here, ODs can still occur on electronic payments.  In addition, mobile banking payments are often converted to paper checks and post when the clear creating potential overdrafts