Fed cut the federal funds rate: The Federal Reserve recently reduced the federal funds rate by -0.50%, which is the rate at which banks lend to each other overnight.
Market interest rates rise slightly: Despite the Fed’s cut, longer-term interest rates, such as those on bonds and loans, increased slightly as a market reaction.
Why did interest rates rise?:
Investors anticipate future inflation or higher borrowing demand due to the Fed’s actions.
A rate cut may signal to the market that the Fed is concerned about economic risks, prompting higher yields as a buffer for potential inflation.
Signal to the market:
The Fed’s cut often signals that they are trying to stimulate economic activity by making borrowing cheaper.
It can also be viewed as a proactive measure to combat slowdowns, but may raise concerns about long-term inflation, which pushes longer-term rates up.
What does this mean?:
Bonds were already being sold in anticipation of the FED rate cut leading up to the announcement, the slight rise is somewhat of a market correction
There's probably a slightly bigger risk that recent rate lows represent something of a FLOOR until economic data makes a case that rates should go lower, but there's NEVER ANY way to know exactly what rates will do in the future.
How to Act:
I would call your credit card companies right now and discuss lowering your interest rates. If you have a good payment history they will be willing to make that move now.
Look to refinance immediately to improve cash flow on investments, consolidate debt, or pull out equity to purchase another asset.
Yesterdays rate cut also signals possible cuts into the future with how aggressively the FED cut. This will bring millions of new buyers into the market which we are already seeing, with inventories near all time lows, expect prices to continue to rise in the home cost sectors.
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