One of the more obvious benefits to financial services consumers in the US is the reduced cost of borrowing, whether it is for a car, as part of a home loan or part of business development loan.
However, retirement savers may well feel more ambivalent about the interest rate cut as it is likely to mean lower rates of return on fixed rate income-generating products as well as greater inflationary pressures over the longer term.
For those with a broad array of financial interests, the interest rate cut represents a useful moment to take stock of their circumstances and to take financial advice.
While the likelihood is that your 401(k) statement is looking more positive than one or two years ago, interest rate cuts are generally a sure sign of economic slowdown. Not that this means we are on the cusp of a bear market. It is more likely that the reserve is pre-emptively keeping the bear at bay and trying to stimulate growth at a time when a trade war with China is contributing to a gloomy outlook.
It is useful to remember that it has been fourteen years since the Federal Reserve made three interest rate cuts over the course of a calendar year. Previously, in 1995, a stagnant-seeming economy experienced a massive resurgence, with Standard & Poor’s 500 stock index rising 251% over five years and global optimism abounding.**
In fact, over the course of 2019, the S&P index has already risen 20%, while Bloomberg’s Barclays US Aggregate Bond Index has followed a similar trajectory, rising 8.3% rise over the same period.* *
Time to review your retirement accounts?
Should news of the latest Federal Reserve interest rate cut be the time to review your retirement accounts?
One great thing about 401(k)s is their flexibility. This means that you can adjust your investments to better reflect your current circumstances, risk tolerance and goals without needing to worry about the tax implications.
Blacktower (US) LLC specialises in helping expats in the United States achieve their financial and retirement goals while taking account of their goals, circumstances and cashflow needs.
For more information about how we can help you make your money work for you, contact us today.
Disclaimer: The provision of information in this communication is not based on your individual circumstances and does not constitute investment advice. Blacktower makes no recommendation as to the suitability of any of the products or transactions mentioned.
* https://www.fox4now.com/news/local-news/federal-reserve-drops-interest-rates-what-does-that-mean-for-you
** https://eu.usatoday.com/story/money/columnist/2019/11/02/retirement-savings-401-k-investors-should-do-following-fed-cut/4121670002/
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.