The Federal Reserve may finally be ready to give the economy a boost with a cut in interest rates.
“Some of your credit card rats are going to go down,” noted financial advisor Richard Rosso. “Maybe personal loan rates are going to be down.For people that want to borrow, businesses that want to borrow, yes, that’s positive. And your 401(k) likes rate cuts.”
The analysts at Goldman Sachs now predict the Fed will reduce rates five times in coming months, three times this year, and then twice more next year as the Fed continues trying to balance the need for economic stimulus with the threat of inflation.
“This is a very delicate dance because inflation is sort of simmering,” Rosso warned. “But, for the most part, the expectations are still solid.”
Rosso acknowledges that dance remains complicated, particularly considering Thursday’s news that costs for retailers, spelled out in the Producer Price Index, rose much more than expected in July. But that number followed a much lower than expected increase in consumer prices in the release of the Consumer Price Index.
Rosso agrees with market watchers who suspect consumers are being protected as companies avoid passing the costs of tariffs on to their customers and instead take a hit to their profit margins, at least for now.
“A lot of companies are absorbing those tariffs,” he said. “I don’t know how long they’ll do that.”
The Trump Administration has long pushed for interest rate cuts and Rosso believes expectations for looser money will provide a lift across the economy, although investors have largely come to expect them and stock prices have risen accordingly.
“For the economy, it definitely greases the wheels,” he said. “And makes you, when you log into your accounts and look at your 401(k) and go “whoo, look at that!’ that’s where it helps. And, actually, markets are pricing in these rate cuts right now.”
Photo: DANIEL ROLAND