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Lower Fed Funds Rate: What are some of the positives and negatives?

Updated: Jan 25

Market expectations for the Federal Reserve to begin lowering the fed funds rate have increased over the past few months.  Some anticipate that the Fed could begin as soon as March.  I do not hold that the Fed will reverse course and lower rates in March.  The impact of the past, especially during the Great Inflation from 1965 to 1982, may keep the policymakers at bay for a period until they are convinced that inflation is in control and on the way to hit their 2% target.


The Federal Reserve lowering the federal funds rate can positively and negatively impact families and individuals. Here's an overview of the potential effects:

 

Positives:

  • Lower Borrowing Costs:

  • Stimulus for Economic Growth:

  • Encouragement for Investing:

  • Reduced Debt Servicing Costs:

  • Mortgage Refinancing Opportunities:

 

Negatives:

  • Lower Interest on Savings:

  • Potential for Inflation:

  • Challenges for Savers:

  • Impact on Pension Funds:

  • Market Volatility:


It's important to note that the impact of the Fed lowering the fed funds rate can vary based on individual financial situations, goals, and the broader economic context. Individuals should carefully assess their specific circumstances and consider consulting with financial professionals to make informed decisions based on their unique needs and objectives.


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