• Matt Stearns

Fed pulls emergency trigger

Updated: Apr 22, 2020

Federal Reserve lowers benchmark rate by .50%. New rate is now sitting at 1% and looking downward.

Simple Translation? It means they are trying to reduce to cost of borrowing in the economy in order to entice more spending (with debt). Mostly aimed at large capital projects in industry. It does have some repercussions for everyday people. Mortgage rates are looking lower and falling below 3% in some markets nationally.

What will it really do?

In our opinion, not much beside some short-term sentiment increase. The act of adjusting the interest rate does nothing. What has to happen is AN ACTUAL INCREASE IN SPENDING. With rates already very low, many companies have already reaped the benefits of cheap debt refinancing. Eventually there is little gained by lowering the rate. --- As a side result companies are now heavily debt-laden (though it is low interest). But presents credit problems in the future.

Thinking that the US can't go negative "because we are too good for that", or "that it is not rational" does not mean that it won't happen.

What are you doing with your portfolio to prepare?

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