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What the Impending Interest Rate Cut Means for You

Say Contributor
Speaking before the House Financial Services Committee yesterday, Federal Reserve Chair Jerome H. Powell strongly hinted that interest rate cuts are coming by the end of July. In response, the S&P; 500 index jumped over 3,000 for the first time ever. A cut would basically be the first time The Fed has touched interest rates since “cutting them to zero during the financial crisis.” Interest What? Cutting interest rates means deceasing the amount of interest on a loan. The lower the interest, the lower the overall cost, and the more consumers and companies can get loans. The Fed typically uses them as a money B-12 shot to stimulate growth when the economy is a bit sluggish. The easier it is to get a loan, the easier it is for a business to expand or a person to buy a house, thus boosting spending. The reason that cuts are probably on the way is that the Fed is concerned that President Trump and his ongoing tariff war, as well as a possible global economic slowdown caused by China might ding the US economy. The Outlook The Fed thinks job growth will continue, and thus for inflation to gradually increase. So, about inflation. A lot of economists believe the government didn’t do enough to boost the economy after the 2008 crash. Some of that was political opposition from Republicans, but also the Fed worried that keeping the unemployment rate too low would trigger rabid inflation. Critics think this is a case of missplaced priorities, valuing policy over people’s lives. So a rate cut might help lower-income people out by further boosting job growth. It might also boost Trump’s reelection chances. (Cutting interest rates to boost job growth is the rare subject Trump and Representative Alexandria Ocasio-Cortez agree on.) The Takeaway: If you’ve been looking for a time to do more investing, late summer might be that time. But since China has everyone worried, best to err on the side of the safest investments possible. -Michael Tedder Photo: Brendan McDermid/Reuters

Speaking before the House Financial Services Committee yesterday, Federal Reserve Chair Jerome H. Powell strongly hinted that interest rate cuts are coming by the end of July. In response, the S&P 500 index jumped over 3,000 for the first time ever. A cut would basically be the first time The Fed has touched interest rates since “cutting them to zero during the financial crisis.” Interest What? Cutting interest rates means deceasing the amount of interest on a loan. The lower the interest, the lower the overall cost, and the more consumers and companies can get loans. The Fed typically uses them as a money B-12 shot to stimulate growth when the economy is a bit sluggish. The easier it is to get a loan, the easier it is for a business to expand or a person to buy a house, thus boosting spending. The reason that cuts are probably on the way is that the Fed is concerned that President Trump and his ongoing tariff war, as well as a possible global economic slowdown caused by China might ding the US economy. The Outlook The Fed thinks job growth will continue, and thus for inflation to gradually increase. So, about inflation. A lot of economists believe the government didn’t do enough to boost the economy after the 2008 crash. Some of that was political opposition from Republicans, but also the Fed worried that keeping the unemployment rate too low would trigger rabid inflation. Critics think this is a case of missplaced priorities, valuing policy over people’s lives. So a rate cut might help lower-income people out by further boosting job growth. It might also boost Trump’s reelection chances. (Cutting interest rates to boost job growth is the rare subject Trump and Representative Alexandria Ocasio-Cortez agree on.) The Takeaway: If you’ve been looking for a time to do more investing, late summer might be that time. But since China has everyone worried, best to err on the side of the safest investments possible. -Michael Tedder Photo: Brendan McDermid/Reuters