Fed rate cut ... what effect will this have?

Question

Hey BP,

So i’m still learning about this but what does it mean for investors and how can we take advantage of it from a real estate / stock investment perspective?

Lionel Li · Answer

It means cost of borrowing overall should be trending down. Doesn't always directly reflect to the 15/30 yr fixed mortgages though since that's based on the 10/30 treasury yields and demand of new mortgages/refinances etc.

Overall, lower interest rate means less interest expense for everyone, more money leftover means increased consumption, lesser yield rate for bank accounts, less of a reason to keep your money in the bank which means more money flowed to the market and investments, but higher inflation bad for savers but good for assets because more appreciation and capital gains.

They're hoping to stimulate the economy and restore confidence because rates influence consumer and business confidence, at least that's what I think they're trying to do, let's see if it's enough to counter what's been going on.

Paul Wachtler · Answer

Agree with Joe about the mortgage rates.  If you have a mortgage on a property and the current rates are a point or more lower I'd recommend refinancing (of course this depends on how long you've been paying off the mortgage and the closing costs so make sure to do your research first).

Karl B. · Answer

Great question. I feel like the cut caught a lot of people off-guard. It should mean more RE deals (especially commercial) as the interest rate will go from great to wowza!

I think they cut the rate because they see slowdown on the horizon and want to keep the economy chugging along.

I've been buying some stock but it's been mineral companies (I've only been buying that sector the past 15 months because I feel so strongly about it and silver/gold tends to do well when the economy slows though I'm not exclusive to gold/silver miners but also other minerals). But that's just my opinion.

Joe Splitrock · Answer

It could mean lower mortgage rates, but they are already pretty low. It is a good time to finance or refinance, but not great if you are putting money in savings accounts.