Quick Thoughts on Interest Rates

Since it is the unofficial end of summer and it has been a weird one in the market, I figured I would share a few thoughts related more to the anticipated interest rate cuts. And since yesterday was a holiday this will be short and sweet.

Market and Fed Thoughts:

• Let’s discuss what the Fed may do. Basically, they said it is time to start cutting rates. Dollars to donuts they will cut at least 25bps (basis points) at their September meeting.

• Now, what is interesting is The Market is planning on 100bps (One full percentage point) of cuts before the end of the year. If I understand their calendar this means there will be at least one cut of 50bps as they only have three meetings left in 2024.

• We are currently at 5.33% with Fed rate. The Market is predicting it to be 3.5% a year from now. Can you hear the bells dinging from refinancing😉

• Seriously, there is already expectation that refinancing of mortgages will help the economy. I haven’t seen anything beyond cursory comments and I would like to see more details, but I get the point of lower mortgage rates allowing more money to enter the system. At the same time, the percentage of mortgages below 3% is still incredibly high, so maybe expectations need to be curbed a bit.

• Now, the above will be critical as when the Fed does cut rates you often see a pullback in spending. Those on fixed incomes may see their income reduced as rates on things like CDs drop ($6 Trillion is presently parked in Money Market accounts). There is also the question of whether the economy is truly slowing and if businesses will delay spending until rate cuts look like they have ended.

• It seems like just yesterday I had to write the special article as the market was tanking that Monday in early August. Now we have the Dow hitting new highs. “Life moves pretty fast.” – Ferris Bueller.

• As I write this, the S&P500 is up nearly 30% since the Fed started raising rates two years ago. I think this is when all the “experts” started predicting an unavoidable recession coming soon.

That is all from me. Have a great week!