How the Current Emergency Federal Rate Cut Could Affect You

Evolving fears and the impact that the coronavirus has had on the stock markets has caused the Federal Reserve to announce an emergency cut for the target range for Federal Funds. The new range is now 1% to 1.25%.

This is the largest decrease in rates since the first emergency rate cut in 2008.

While many Americans focused mainly on the health of themselves and loved ones, it is still good to note how this rate cut can impact the financial wellbeing of Americans and their families.

What Does This Rate Cut Mean for the Average Person?

This rate will affect the interest rate that people pay on adjustable-rate mortgages, credit cards, and other types of loans. For those who carry balances on credit cards or those with adjustable-rate mortgages, a Federal Reserve rate cut should mean lower interest rates for consumers.

For those with investments such as money market funds, or savings accounts, this can also mean their earnings on those accounts will also decrease.

What Should People with Credit Card Debt or Loans Do?

If your card or loan has a variable interest rate, the interest rate should decline in response to this action by the Federal Reserve.

This is also a good time to shop around for lower interest rate credit cards, as card issuers will want to compete with one another for your business.

What Would be a Good Course of Action for Those with Investments?

If your bank should lower their interest rate on your savings account or money market account, this would also be the perfect time to shop around for better rates.

One strategy is to invest in what is known as a ladder arrangement. Split your investments into 3 or four equal amounts and put each amount in a certificate of deposit, with one amount maturing in 6 months, the second maturing in 12 months, etc.

Certificate of Deposit, or CDs, often pay higher rates and by staggering the maturity dates, you will still be able to access part of your money within months if you need it.

Is This a Good Time to Purchase Stocks While the Market is Low?

It is very difficult, even for experts, to predict how the stock market will react to this rate cut. You must also consider the impact that the coronavirus is having on markets around the world.

Previously, Federal rate cuts have stimulated the economy, but unlike past scenarios, America is still living with the fear of quarantine, shortages of food or medical supplies, including prescription drugs, and job loss over the coronavirus. How this scenario plays out, in the end, remains to be seen.

This could be an excellent opportunity to invest in the stock market. However, it could also become a nightmare since no one can predict the future.

Anyone trying to predict the timing of the stock market in today’s circumstances could be a financial boon or a financial bust.