Fed Rate Cuts: What They Mean for Your Money

The Federal Reserve is set to cut rates at its Sept 18th meeting.

Why?

Because the Fed operates with a dual mandate.

1. Stable market prices of good and services (low inflation)

2. Maximum employment

The ultimate goal is to keep the Fed funds rate at a level that maintains low inflation and a healthy labor market. When these are out of balance, the Fed addresses them. In 2022, inflation spiked to 9% and the employment market was a job seeker's dream.

The Fed acted. Inflation cooled (now 2.5%). This is more stable, certainly, but not yet at the Fed’s target. But, the job market remains in flux. Unemployment started this year at 3.4% in Jan and was up to 4.2% by August.

Excluding COVID-19, unemployment hasn’t been this high since 2017.

To gauge how restrictive the policy is, note that the Fed Funds rate is 5.25% while inflation is at 2.5%—a 2.75% gap indicating a very tight policy. If rates aren’t lowered, the economy risks further slowing, which may help inflation but could lead to rising unemployment.

The punchline: these 3 elements (inflation, unemployment, and the Fed’s rate policy)indicate that the Fed should be cutting to support the economy, and they have the room to do so.

How Much Will the Fed Cut?

The Fed learned in the 1970s that cutting rates too quickly can cause inflation to surge—a mistake they’re eager to avoid. I predict, they will likely begin with a ¼ point cut, with the possibility of ½ point cuts later on before the year is out.

While rate cuts of 2-2.5% over time are possible, the Fed will pause and reassess as needed to ensure growth without reigniting inflation.

Will the Presidential election affect the Fed’s actions?

Regardless of the outcome in November, the Federal Reserve will continue to operate independently, focusing on economic stability rather than political shifts. The Fed’s decisions are guided by economic data, not election results.

In the U.S., the economy is influenced by two key forces:

1. Monetary Policy (set by the Fed): controls interest rates and the money supply.

2. Fiscal Policy (set by elected officials): impacts government spending and taxation.

Both play critical roles in the economy, but the Fed’s independence allows it to manage inflation and employment without political interference.

What will these cuts mean for me?

It depends.

• Fixed-rate debt (most current mortgages) will not be affected by rate cuts

• Variable-rate debt (credit cards, HELOCs) could see lower interest rates, reducing your monthly payments

• Savings accounts and money market funds will likely see a reduction in interest rates, which could encourage you to explore higher-returning investments

• Asset prices, such as stocks, often rise when rates drop, as a key input in pricing an asset is the interest rate and lower borrowing costs make investing more attractive

Interestingly, and importantly, this is exactly how monetary policy is supposed to work. High rates slow borrowing, more cash holding which cools the economy. Conversely, low rates lead to more borrowing, lower holding of cash, and a more stimulated economy.

It’s important to Note the Fed Does NOT Control All Interest Rates

They only control the overnight lending rates to banks, which tends to only affect short-term interest rates in the economy(you can learn more about interest rates here).

Long-term interest rates, such as a mortgage, aren’t directly affected by the Fed's immediate decisions. Mortgage rates are often tied to the 10-year treasury rate, which is generally controlled by open market forces.

Thanks for all this, so what do I do?

As the Federal Reserve moves toward reducing interest rates, the decisions you make in the coming months could greatly impact your financial future. Lower rates present both opportunities and risks— whether it’s locking in lower borrowing costs, adjusting your savings strategy, or rethinking your investment portfolio. 

Now is the time to act — be proactive not reactive. Don’t wait until the market shifts further—your window to make smart financial moves is narrowing. At Julius Wealth Advisors, we help you cut through the noise and make informed decisions to stay ahead of the pack.

Let’s start a conversation today— visit  juliuswealthadvisors.com, reach out via email, or calendar a call today. Together, we’ll help position you for financial success in this uncertain changing landscape.

Remember, building wealth is by choice not chance.

Disclosures

This piece contains general information that is not suitable for everyone and was prepared for informational purposes only.  Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee any future results. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit adviserinfo.sec.gov.