News & Media

The Fed’s Looming Rate Cuts Present

Opportunities for Investors.

Marc-Anthony Richardson, MBA, CPM®, BRB Trust Portfolio Manager

Economic forecasters are in consensus that in September 2024, the Federal Reserve has begun its long-anticipated series of rate cuts to end their cycle of tackling inflation. This decision marks a pivotal moment in our nation's monetary policy, signaling a stable economic environment amid global uncertainties. This series of rate cuts, expected to continue well into 2025, is significant for several reasons:

Stimulating Economic Growth: Lower interest rates reduce the cost of borrowing, encouraging both consumers and businesses to take loans for spending and investment. This increased economic activity can help boost GDP and reduce the risk of a recession.

Boosting Consumer Spending: As borrowing costs decline, consumers are likely to increase spending on big-ticket items and services, which can drive demand and support economic growth.

Supporting the Job Market: Easier access to credit can help businesses expand and hire more workers, contributing to job creation and potentially reducing unemployment.

Inflation Management: Lower rates can help counter deflationary pressures, ensuring inflation remains at a healthy level and supporting stable economic conditions.

Investment Considerations

Lock in interest rates before the cut.

Investments on the conservative end of the spectrum have seen favorable rates of return over the past two years. However, it is expected that when the Federal Reserve cuts rates, these favorable returns may diminish in the coming years. Therefore, it is crucial for investors who rely on interest income from their portfolios to support long-term cash flow needs to either lock in the currently available interest rates or develop a strategy to take advantage of the anticipated yield curve normalization.

Take Advantage of High Dividend Paying Stocks.

Specific sectors, such as utilities, energy production, and real estate investment trusts, have a history of paying consistent dividends. These companies also rely heavily on lines of credit for expansion and maintenance of their service infrastructure. As interest rates decline, they can reduce their interest payment burden, which will support the expansion of their market capitalization while maintaining consistent dividend payouts.