Could the Fed’s Rate Cut Change Your Investment Strategy?

On September 17, the Federal Reserve announced a 25 basis-point cut to the federal funds rate, lowering the target range to 4.00%–4.25%. The move, widely expected by economists and investors, comes amid signs of a cooling labor market, according to Fed Chair Jerome Powell. Below are some ways the rate cut could affect your savings:

Bond Market:

Bond prices tend to rise when rates are lowered, and existing bondholders may benefit from the drop. Bond performance also depends on inflation expectations and risk perceptions.

Stock Market:

Rate cuts may support stock prices, especially in interest-sensitive sectors such as real estate and utilities. However, potential changes depend on how markets react to the Fed’s overall economic outlook.

Credit Cards:

Most credit card annual percentage rates (APRs) have remained high. With the rate cut, APRs are expected to decline slightly, which may reduce interest costs for those carrying a balance. Changes may vary by issuer and borrower profile.

Home Equity Lines of Credit (HELOCs):

HELOCs typically have variable rates tied to the Fed's benchmark. Homeowners may see a reduction in their monthly payments as rates adjust downward.

High-Yield Savings Accounts:

While high-yield savings accounts and certificates of deposit (CDs) offer higher APYs than standard savings, their rates often respond quickly to Fed decisions. A drop in yields is likely. According to the FDIC, the current average APY for a standard savings account is around 0.39%.

Certificates of Deposit (CDs):

CDs offer fixed interest rates for a set term, and existing CDs won’t change. However, new CD rates may decline following the Fed’s move. Locking in a CD rate now could preserve a higher yield before further cuts.

Personal Loans:

Borrowers seeking new personal loans might benefit from slightly lower rates. Existing fixed-rate loans won’t change unless refinanced.

Auto Loans:

Those planning to purchase a car could see a modest dip in auto loan rates, although the change may not be dramatic.

Mortgage Rates:

Unlike other consumer rates, mortgage rates are more closely tied to the 10-year Treasury yield, rather than the Fed’s benchmark. As a result, this rate cut may have little to no direct impact on mortgage rates. However, the cuts could affect adjustable-rate mortgages (ARMs) and home equity loans, which may reset due to the lower rates.

Rate changes are part of the Fed’s broader goal to support maximum employment and price stability. Future decisions will depend on evolving economic indicators like inflation, unemployment, and global trade conditions.

If you're managing debt or looking for new savings opportunities, now’s a good time to review your portfolio and consider how changing rates could affect your financial plan. Speak with an Oppenheimer Financial Professional today to learn more.