On a Sunday…a SUNDAY, the Federal Reserve moved to cut interest rates to 0-0.25 percent. As well they increased their purchase of Treasuries and Mortgage Backed Securities. These powerful moves were made to combat the effect of the Coronavirus on the economy and to lessen the likelihood of a recession. When the Fed lowers rates, their goal is generally to stimulate the economy and encourage borrowing and investing. I believe it was done on a Sunday to calm fears before the Stock Market opens.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed said. “The effects of the coronavirus will weigh on economic activity in the near-term and pose risks to the economic outlook.”
Although you may make less on your savings, there is opportunity on the other end of the spectrum. Here are a few things you should be doing:
- Review the terms of your mortgage. This may be an opportunity to refinance your mortgage. If you are able to lower your interest rate and keep fees and closing costs low, this could be a huge win and a significant savings. Mortgage interest rates do not ALWAYS fall after a cut, however in this case, experts believe they will.
- Home Equity Line of Credits (HELOCs) typically fall by the amount of the rate cut. If you have an outstanding balance, you should see your expense decrease. As well, if you are considering a HELOC, this could be the time to access your equity line.
- Review any CDs coming due. Do not automatically rollover your CDs into new ones. Carefully review the new rates! The new rates are likely to be very low—lower than they are today. You may find better opportunities elsewhere.
- If you are considering taking on a new loan like an auto loan, this may be an opportune time. The payment and the amount of interest you pay over the years will be lower—depending on your credit, of course.
- Your credit card debt could be adjusted. If your rate isn’t adjusted automatically, call and ask the credit card company your options. Credit card companies can change variable interest rates whenever they want. As long as they provide you advanced notice, they can adjust your rate. Since the Fed has lowered interest rates, credit card companies will likely follow suit.
- Look for opportunities in the Stock Market. Lower interest rates make the stock market look more attractive. Lower rates make it easier for businesses to borrow and invest. If it’s easier to borrow and invest, then more money will be spent. Although there’s no guarantee of how the market will react, historically when the Fed increases interest rates, the stock market goes down. When the Fed decreases interest rates, the stock market goes up.
We are in a unique situation that calls for special attention from those who manage and promote stability in the financial markets. You should pay attention to how it affects you personally and if possible, make your financial situation better. Do a self-check! #Selfie
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