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.
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First Fruits Asset Management has been in the financial services profession since 2007. We work together to create a personalized financial plan. We then review and revise the plan as situations and/or goals change over time. Contact us today to learn more about how we can build a partnership with you today.