Episode 31
The Fed's Playbook: How Rate Cuts Impact Your Wallet and Financial Strategy
Episode Description
In Episode 31 of The Big Bo $how, host Jason Blumstein, CFA® (aka Big Bo), CEO & Founder of Julius Wealth Advisors, breaks down the Fed’s next big move. With interest rates on the verge of being cut, the big question is: What does this mean for your money?
From:
Mortgage payments to credit card debt
Savings accounts to stocks
The ripple effects of the Fed’s decisions will be felt everywhere. But don’t hit the panic button just yet—Big Bo is here to guide you through it all.
In this episode, we’ll cover:
How interest rate changes impact your financial future
The smart moves you can make to stay ahead of the curve
Whether you’re unsure of your next step or looking to get ahead, Episode 31 is packed with the insights you need to make confident decision and take control of your financial future in these shifting economic times
So, tune in, buckle up, and get ready to make some power moves! You won’t want to miss this one.
Episode Transcript
Hey everyone. Welcome back to the Big Bo $how. I'm your host, Jason Blumstein, aka Big Bo, CEO and founder of Julius Wealth Advisors. Today on episode 31, we're diving into a topic that might not sound exciting at first, but trust me, it's going to hit close to home. Interest rates. And here's why today's episode is extra timely.
The Fed is widely expected to start cutting interest rates today and we're recording this episode just before the big decision drops now I know what you're thinking Big Bo. This sounds boring. Why should I care about what the fed is doing? Well, here's why you should care because the moves they are making will directly affect your wallet. Maybe you're thinking about buying a home. You got some credit card debt you're trying to pay down. Or you're wondering why your savings account isn't giving you the returns it used to.
Whatever the case, the Fed's decision on interest rates are about to play a major role in shaping those outcomes. Today, we're breaking down why the Fed is cutting rates, what they're trying to accomplish, and most importantly, what it means for you.
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The decisions you make now could have a huge impact down the road, whether it's locking in lower borrowing costs or shifting your saving strategies to get the most out of your money. So here's the deal. By the end of this episode, you won't just know what's going on. You'll understand why and feel empowered to make smart, strategic moves because in this game, standing still isn't an option.
Let's make sure you're ahead of the curve, not playing catch up. Buckle up, because you're about to be ready to make some power moves and take control of your financial future.
All right, let's get after episode 31. Now, before we dive into the nitty gritty, let's take a step back and understand why the Fed is cutting rates in the first place. Like I always say, if you understand why something is happening, it's easier to understand what's happening, and more importantly, the moves you need to make.
The Federal Reserve operates with a dual mandate. Number one, stable prices, which means keeping inflation low. Number two, maximum employment. When these two goals get out of bounds, the Fed steps in to make adjustments. Let's rewind to 2022. Inflation hit a massive 9%, the highest in decades, while the job market was on fire.
There were more job openings and people to fill them, making it a job seekers paradise. To cool things down, the Fed raised interest rates aggressively, using their most powerful tool, the Fed funds rate. By raising it, the Fed makes borrowing more expensive, which slows things down and cools off inflation.
Fast forward to today. Inflation has dropped significantly. It's now at 2. 5%, much better than before, but still above the Fed's 2% target. However, we've got a new problem, the labor market. Unemployment has crept up. At the start of the year, it was 3. 4%, but by August, it hit 4. 2%, the highest it's been since 2017, outside of the COVID 19 spikes.
So what's happening here? The Fed is walking a fine line between keeping inflation low and preventing rising unemployment. If they focus too much on one side, the other gets out of whack. That's the balancing act they're dealing with right now.
Now, let's talk about just how tight their policy is. The Fed funds rate is currently sitting at 5.25%, while inflation is 2. 5%. That's a gap of 2.75%, $howing how restrictive their policy is. They've been putting a lot of pressure on the economy to slow things down. But if they don't ease up soon, there's a risk the economy could cool off too much. Sure, that might help inflation drop further, but it can push unemployment even higher.
And nobody wants that to happen. So, the big question, how much will they cut? The Fed is expected to start with a modest quarter point cut. Maybe they'll go for a half a point cut, but why not more? Well, the Fed learned a tough lesson in the 1970s. Back then, they cut rates too quickly. Inflation spiked again, and the economy spiraled out of control.
This time, they're taking a more measured approach, tapping the brakes slowly instead of slamming on them. If the Fed goes with a half a point rate cut, It could send a different message. It might signal that the labor market is worse shape than people expected, which could spook the markets. It's all about psychology.
While a bigger cut might sound great for borrowers, it could backfire if it creates fear that the economy is weaker than it seems. Looking ahead, the Fed has room to continue to cut rates. Their current policy is very restrictive, so there's space to ease up further. But they don't want to move too fast and risk reigniting inflation.
No one wants a repeat of the 1970s. That's why we're likely to look at a quarter point cut followed by a wait and see approach. The Fed is data dependent, meaning they'll watch how the economy reacts before making further cuts.
Now, I know some of you are wondering, will the upcoming presidential election affect the Fed's decision? The short answer, absolutely not. The Federal Reserve was designed to be independent from politics, and that's key to its stability. The Fed's job is to focus on economic health, not political outcomes. To break it down, there are two forces influencing the economy. Monetary policy, controlled by the Fed, which impacts the interest rates and the money supply, and fiscal policy, controlled by elected officials.
Which deals with taxes and government spending. While both are important, the Fed's independence ensures that inflation and employment decisions are based on economic data, not political agendas. So no matter who wins the election. The fed will keep doing its job now that we've covered why the fed is cutting rates
Let's move on to the big question. What does this mean for your money? But first let's take a quick break.
All right, folks now for the part you've all been waiting for how do these fed rate cuts affect you? Should you be making moves or is it better to sit tight?
Let's start by quickly covering how monetary policy works. Higher interest rates slow down borrowing and encourage savings which helps cool off the economy by reducing spending. Low interest rates make borrowing cheaper and encourage spending and investment which stimulates the economy. But here's the key the fed doesn't control all interest rates. They set the overnight lending rate which influence short term rates like those on credit cards and HELOCs. Long term rates, like 30 year mortgage rates, are driven more by the 10 year treasury rate, which is influenced by market forces.
So let's break it down by category. Debt. Fixed rate debt. You've got a fixed rate mortgage or a car loan. The Fed's rate cuts won't change your payments. because your rate is locked in. However, if your current rate is higher than what's being offered, consider refinancing to lower those monthly payments.
Variable rate debt. If you've got credit cards, HELOCs or variable rate personal loans, you might see some benefits. When the Fed cuts rates, your interest rate usually drops too, meaning lower monthly payments. Who doesn't love saving a few bucks?
Savings accounts. Now, let's talk savings. While lower rates are great for borrowers, they're not so kind to savers. As the Fed lowers rates, the interest you earn on savings accounts, money market funds, and CDs will likely decrease. So if you got a ton of cash in a basic savings account, your returns might not be as rewarding as they used to be. It could be a good time to explore higher yielding investments.
Stocks. Finally, let's talk stocks, or as I like to call them, ownership stakes in businesses. Lower rates often lead to businesses feeling more confident as they can borrow at lower rates. Fueling expansion. Plus, lower interest rates tend to mean higher asset valuations because interest rates are a key component in asset pricing. With rates dropping, we might see stocks rise.
So should you take action right now? The answer depends on your financial situation. If you got variable rate debt, this could be the perfect time to refinance or consolidate to lock in these lower interest rates. If you're sitting on a pile of cash in a low interest savings account, it might be time to think about reallocating to higher return investments and making your money work harder for you.
But here's the golden rule. Don't make knee-jerk decisions based on headlines alone. Sometimes the best move is to stay put and stick to your long-term financial plan. That's where a good financial advisor comes in. They can guide you through these shifts and make sure your strategy aligns with your goals.
If you're still unsure about how these changes could impact you, reach out to us at Julius Wealth Advisors. Will help you navigate the changing landscape and ensure your financial strategy is on point for whatever comes next.
Now before we wrap it up, let's dive into my favorite segment Bo Knows. But first, let's take a quick break when we come back we're going to break down how interest rates are like the draft system in sports. Trust me, you don't want to miss this.
All right, folks, it's time for our favorite segment, Bo Knows. Let's compare the rise and fall of interest rates to the draft system in sports. When a team isn't doing well, they get a higher draft pick to rebuild and stimulate growth. That's like the Fed lowering interest rates to jumpstart the economy, making it easier for businesses and consumers to borrow and invest, kind of like a franchise drafting a top-tier talent to turn things around.
But when a team is dominating, they get a lower draft pick to cool things down and keep the competition fair. That's like the Fed raising interest rates when the economy is running hot, making borrowing more expensive to prevent overheating. It's all about balance, just like trying to keep a winning team from dominating the league too much. And, just like the draft pick, there are busts and surprises. Not every high pick works out.
Think Bryce Young or Jamarcus Russell, or dare I say our boy, Tua. While late picks like Brock Purdy or Tom Brady end up being superstars. It's all about having a great GM to make the right calls. In finance, you need the same thing. A solid strategy and a great “GM” to help you make smart decisions.
That's where Julius Wealth Advisors comes in. We're here to help you navigate these economic “draft picks” and guide your financial decisions. Whether interest rates are rising or falling. So what should you do now as the Federal Reserve moves towards cutting rates? The decisions you make in the coming months could have a huge impact on your financial future lower rates can create both opportunities and risks whether it's looking into lower borrowing costs adjusting your saving strategy or rethinking your investment portfolio now's the time to act. Be proactive, not reactive don't wait until the market shifts further your window to make smart financial decisions is narrowing.
At Julius Wealth Advisors we cut through the noise and help you make informed decisions to stay ahead of the game. Let's start with the conversation today visit juliuswealthadvisors. com Reach out via email info@juliuswealth.com or give us a call at 201 408 4644 Together we'll help position you for financial success in this ever changing landscape.
Remember, building wealth is by choice, not chance.
Thanks for tuning into the Big Bo $how, live a life of integrity, obtain as much knowledge as possible, and always pursue what you're passionate about until next time. All the best. Thank you for tuning in to The Big Bo $how.
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