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At 2 PM EST today (July 31st, 2019), we received confirmation that The Federal Reserve has reduced the target range for its overnight lending rate 2% to 2.25%, or 25 basis points from the previous level. This is the first drop since December 2008, right around the time of the great financial crisis. With this 25 basis points cut comes problems as well as benefits, and various things that we finance professionals are keeping a close eye on moving forward.

The biggest issue with the cut in interest rates doesn’t necessarily come with the cut itself- it’s what the cut represents. Our last memory of the Fed reducing rates includes a recession in the immediate vicinity, so this change has experts on their toes monitoring the rate of inflation and where the markets are moving from here. After raising rates nine times in the past three years, with the final raise being in the midst of the December 2018 disaster, it’s prudent to consider the lack of movement within the economy as a reason for the Fed to make this drastic decision and change course. This is not necessarily a time to panic though, because there are certainly benefits that come with this announcement.

Here’s the good news: borrowing costs are going down with this announcement, with the possibility of giving you a brief reprieve on your credit card, car payments, or most notably, mortgage payments. While your long-term fixed mortgage rate may not be immediately affected, now is a good time to consider refinancing and reviewing long dated debt terms. According to Greg McBride, chief financial analyst at Bankrate and CNBC contributor, “On the heels of the Fed decision, this represents the single greatest saving opportunity for consumers.” While the savings may not be astronomical, this rate will most likely result in smaller monthly payments and give consumers some room to consider what would typically be right outside of their budget.

Movements within the stock market tend to be a double-edged sword, and it is all about how you interpret the changes and the Fed’s comments. We always encourage investors to focus on the benefits while also considering the possibility that things will take a turn in the other direction. With this mindset, you will be prepared to execute long-term goals as opposed to making rash decisions and succumbing to any immediate reactions to the stock market or in this case, The Fed.

As always, please don't hesitate to call or email with any questions.