Adam Robert joined Darren Perron from WCAX on Sunday September 22 during "You Can Quote Me." Adam answered some of the questions that many people have after the Federal Reserve, the U.S. central banking system, recently cut interest rates for the first time in four years, reducing the key lending rate by half a percentage point, to a range of 4.75% to 5%.
Adam helped answer questions like:
- "When should people either refinance their homes, or cars?"
- "What took so long for the Fed to make this cut?"
- "Is this the first of many cuts to come?"
- And more
You can watch the full "You Can Quote Me" segment on the WCAX website. If you'd like to go straight to Adam's segment, please skip ahead to 23 minutes and 20 seconds. Watch it here.
Or, you can read the transcript of Adam and Darren's conversation below.
Darren Perron:
Welcome back. We are talking about the Fed's big move to cut interest rates by a half point, and what that means for your wallet. And we continue our coverage now with Adam Robert, with Clute Wealth Management. Thank you for being here.
Adam Robert:
Darren, thanks for having me.
Darren Perron:
You bet. So, when should people either refi their homes or cars?
Adam Robert:
So, I mean, you know, there's quite a few different factors that you'll need to look at. You want to determine if the cost to refinance are going to be recouped over the life of the loan, that you'll be saving that interest. There's kind of a general rule of thumb that you may want to decrease roughly one to 2% from your current rate. You know, like I said, there's an average, but if you have a higher mortgage balance with longer to pay, a smaller rate decrease is probably going to make sense, maybe a half a point, but if you have a smaller balance and maybe you've already paid a large amount of interest, it may make more sense to wait until there's more of a rate decrease.
Darren Perron:
What took so long for the Fed to make this cut?
Adam Robert:
The Fed, they have a dual mandate, so they're watching employment and inflation figures really closely. They're waiting for really big changes in inflation to happen while they monitor that unemployment, which has stayed fairly low. But when the Fed stopped hiking rates in mid '23, really, a lot of people weren't sure how long they'd stay at that level before they started to cut. But we believe that the Fed was, they were practicing patience right, to allow those high rates to do their job and reduce inflation.
Darron Perron:
Did that so called Soft Landing work, where the Fed curbed inflation without causing a sharp recession?
Adam Robert:
As of right now, it looks like it is working, but we won't really know for sure until about a year from now. That's kind of the tricky part of using backwards looking data to guide the economy going forward. It's like using a rear view mirror in your car to help you steer that car going forward down the road. Most of the data points show right now that there will be a soft landing, but things tend to ebb and flow, so the Fed remains data dependent and see if we'll correct course if they see it fit to do so.
Darren Perron:
Is this the first of many cuts to come with this, kicking off maybe a trend of rate reductions to make borrowing more money more affordable?
Adam Robert:
Definitely. Yes. It's a preview of coming attractions, the Fed dot plots, their forecast the voting members estimates for rates going forward. It predicts another half point of cuts remaining in 2024 and possibly a full point in 2025 but again, they're data dependent, so this can change at any time, and each meeting allows the voting members to update their estimates.
Darren Perron:
So should people then wait to buy or refi until the rates come down even more?
Adam Robert:
Well, the markets are always forward looking, so they're often pricing in these things ahead of time. Just because rates are pretty good decrease further really doesn't mean that borrowing rates will move in lockstep with the Fed funds rate. It's highly unlikely that we'll see 3% mortgage rates anytime soon, but if you're planning a large purchase like a car or a house, you're going to want to keep an eye on rates as some move quickly, and some do take longer to decrease.
Darren Perron:
High interest rates had a lot of people putting money in what some might consider old school investments like CDs or savings accounts. Why, and are those still a safe bet?
Adam Robert:
Well, many people took advantage of the high rates that CDs and money markets were offering without needing to take any market risk, and we'll likely see a lot of the funds flowing out of these assets and back into other investments, or it's going to prompt savers to turn into spenders. We don't really like to use the word safe in our industry, but these assets, the money markets, the CDs and whatnot, can be under FDIC protection, so they're good for short term savers. And you know, with longer term investors, they're probably going to turn elsewhere for potentially higher returns.
Darren Perron:
Financial expert, Adam Robert, thank you very much.
