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.
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.
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.
If you have questions about your fixed-income investments or portfolio during this economic environment, please contact our office for a consultation.
Disclosure: This newsletter is being provided as a service to you. Please note that the information and opinions included are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Financial Professionals should ensure they continue to follow the current policies on the use of any advertising, third-party materials and/or social media as required by your broker/dealer and/or the carriers that you represent.
In addition, JP Williams is the Founder of Pillar Wealth Group who lives and works near Columbus, Ohio. JP founded Pillar Wealth Group with over 17 years of experience and specializes in financial planning, retirement planning, investment management, risk management, college planning, and estate planning. Contact us today to get started with your financial wellness journey. Contact us today to schedule an introductory meeting!