Fed Cuts Rates For First Time In Years

Last week the Fed decided to cut rates by 50 basis points, or .5%. This decision has been expected by Wall Street for some months. We saw very little movement in the market at the end of trading when the decision was announced. However the day after, the market had a strong day as the market currently sits around all time highs.

How this rate cut could be good for the market:

A rate cut is typically intended to spur both spending and economic growth. Big purchases such as a car or home will be easier with more attractive loan prices. These types of consumer purchases are often the catalyst of other consumer purchases. Someone who buys a new home may need furniture, appliances, even utilities such as interenet. This is the type of spending that leads to strong economic growth. In addition, small businesses can aford more favorable loans which could facilitate small business growth and spending.

How this rate cut could be bad for the market:

Though this rate cut is intended to help grow the economy, it should be noted that it doesn’t always work. If you look at a history of Fed rate cuts, you will notice that sometimes, not always, that a weak economic year follows. This has happened in both 2001, and 2007, for example. A deep analysis of our market shows there a few red flags that could be a precursor to a recession, but not as many or as back in 2001 or 2007.

In the coming weeks it will be harder to fully guage our market strength. There are still companies quarterly reports to look at and review which will affect the market. As well as the election. As the elections loom closer, our market will see increases volatility and will also make it harder to guage our current market. As a savvy investor, I urge you caution on the rocky road ahead. However with these rate cuts, I believe, every individual should see where the benefit to both themselves and their family lies.