Markets

Fed Cuts, Now What?

The Federal Reserve recently voted to cut interest rates, shaving 0.5% off the benchmark . (1)

Markets rallied exuberantly at the news, reaching new highs. (2)

Why did the Federal Reserve cut rates?

With inflation on a strong downward trajectory and concerns about economic weakness rising, the Fed clearly decided now was the right time to cut. The size of the cut was a surprise to many, who expected a quarter-point cut and could indicate that the Fed feels strong action is warranted. Some analysts believe lowering interest rates will lower the risk of a recession and increase the odds of a “soft landing” for the economy. (3)

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Interest Rate Explainer

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Whenever you listen to financial experts, there’s one topic that will almost always come up: interest rates. But what do interest rates have to do with your portfolio and wealth?

It turns out, a whole lot.

When you hear the term “interest rates” on the news, it’s usually referring to the Federal Funds Rate, which is the rate that banks use when borrowing from one another. This interest rate is the benchmark set by the Federal Open Market Committee (FOMC), and factors in current economic conditions like inflation, employment, and GDP growth.

But why should you care about the Federal Funds Rate?