Elite Capital International: Fed Slashes Interest Rates as Coronavirus Fears remain
This is an emergency move to help the economy to stay on track even experiencing economic slowdown because of the coronavirus (COVID – 19) fears. The slash comes right on the heels of an emergency meeting with finance ministers and central bankers of the G-7 countries this Tuesday morning. After the meeting, G-7 then announce its step on helping out the economy to survive downturn.
The statement reads as follows:
“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1 1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”
This is the first ever rate cut of the Federal Reserve this year 2020 following three smaller cuts last 2019. Lower rates supports a more active economy because it will induce more money, prompting businesses to invest and consumers to spend and borrow which will keep money flowing back to the economy.
However, lowering interest rates won’t be of help for everyone. There are only few of them that will benefit on this sudden trimming, and they are listed below;
Mortgages
– Pros: Lower rates are great for people who are getting a mortgage or refinancing an existing mortgage and also those with adjustable-rate mortgages will also benefit from lower rates.
– Cons: Those who are unable to take advantage of lower rates, maybe because they’re their house is underwater or they are locked in a fixed-rate mortgage and the current rates are not quite that low to refinance.
Home equity
– Pros: It helps people with outstanding balance on HELOCs to lower their interest expense. Lower rates can also be beneficial to those who looking to take out a HELOC, and it can be a good time for a comparison shopping on the best rate.
– Cons: If you are locked in a fixed rate portion of what you have barrowed, you cannot take advantage of the lower rates – you might otherwise be paying less.
Credit cards
– Pros: The lower rate news is a good riddance for those who have an outstanding balance on their credit cards because of coarse their interest expenses lessens big-time.
– Cons: No cons but also not a big deal to people who doesn’t have an outstanding balance on their card.
Auto loans
– Pros: Just like taking out a house, auto loans is a big yes on today’s market because of the lower interest rate news. So if you are looking to take out a brand new car, this time is for you, unless you are still hoping for an additional cut.
– Cons: You might feel bad if you’ve just locked in your car loan, but the difference in the loan’s overall cost for even a few rate declines is relatively small.
The stock market
– Pros: Stock investors did well as it became clearer that the Fed was on board to lower interest rates. The market pushed up many stocks in anticipation. Bond investors have also done well, as lower rates — or the expectation of them — raised the price of bonds.
– Cons: Paradoxically, while stock investors may benefit in the short term as rates decline, the increased prices may set up investors for losses in the medium term. If the economy weakens further and the Fed cuts rates again, investors may begin to anticipate that a recession is looming and quickly sell off stocks. So today’s winners can quickly become tomorrow’s losers.
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