What to do — and what not to do — now that the Fed is signaling lower rates

The Federal Reserve did not lower its key interest rate but signaled that it may do so in September. Expectations are that the central bank could continue cutting rates over the next two years. Lower rates may affect various financial products, including credit cards, home loans, bank accounts, certificates of deposit, and bonds. The magnitude and timing of rate cuts will determine the impact on borrowing costs. Small rate cuts this year may not significantly reduce interest costs, but multiple cuts over the next year or two could make a noticeable difference. It is advised not to make premature decisions and wait for more substantial rate cuts. When it comes to mortgages, even small rate cuts can result in meaningful savings, but buying down points may not be advisable if refinancing is a possibility. The average rate for home equity lines of credit (HELOCs) is around 9% to 11%, and small rate cuts won’t make a substantial difference. Car loans may see a slight reduction in monthly payments with rate cuts, but the primary driver of savings is the price of the car, financing amount, and credit rating. The initial drops in high-yield savings accounts and certificates of deposit will not be significant, allowing for continued inflation-beating returns. It is recommended to lock in high rates for near-retirement individuals to cover early retirement living expenses. For those further from retirement, it may not be practical to keep excessive amounts of cash in these accounts. It is suggested not to exceed six months’ to a year’s worth of living expenses in cash or cash equivalents to avoid inhibiting future net worth.