Fed cuts rates by 1/4 point

[disney11fan]

Will this get your Happy feet dancing? Nice that the rate cut is made official. Borrowing money just got better.

 

[vacationer1954]

How does an interest rate cut affect the dividends I'm going to be relying on to pay for my annual passes?

 

[barkley]

for those of us looking to save vs. borrow it's not great. makes me glad that i locked in multiple 5 year cd's at 3% fixed back a year ago. at least i can add to those.

 

[Nick6300]

Not only savings rates also going down, but it gives the Fed less firepower when the economy is worse than it is to help soften the blow of a recession.... don't really think it's that bad yet.

 

[MillauFr]

How does an interest rate cut affect the dividends I'm going to be relying on to pay for my annual passes?

Could be worse. Many of the government bonds in Europe have negative interest rates. They actually charge you to hold your money. Not sure why people wouldn't keep their money under the mattress.

 

[Anthony1971]

Problem is The Fed Rate has a long time to have any bearing on the actual loan rates and Interest rates as this is the rate Banks borrow money not what banks pay to borrow your money or for you to borrow money. It does lower the prime rate which is a suggestion of what one can borrow money at -- in other words if you are average+ you may get prime which is now a 5.25% target if you have bad credit you will be higher if you are have excellent credit you may be lower.... but is still a far cry from what interest earns in even the best CD's or savings accounts. What all this really does is encourage banks to borrow more money and lend you money of course at a profit for the bank... It will be a while before the bank will pass their profit on to you..

 

[Nick6300]

While federal funds (overnight bank to bank) rate target doesn't directly affect loan rates and savings rates, the action has the same effect. When Prime decreases from 5.5 to 5.25, variable rate loans based on Prime, a good chunk of them, drop. LIBOR based loans are going away soon. Banks even lower newly issued fixed rate loans, not as a must, but to be comparable to the variable rate options that just got lowered.

When I issue new loans I try to tempt you towards variable rate loans because banks borrow short and lend longer and it's easier to match cost of funds by locking in a margin. But most people want a fixed rate these days with such low, relative to history, rates.

Many people think lower rate environments help banks since they can give you less interest on savings. But lower rate environments are tougher for banks to be profitable. Big banks can have more than 3-1 deposits to loans, but most smaller banks, even large regional banks, are closer to 1:1 loans to deposits. And among other things, there is less margin over cost of funds for profit on loans when loan rates are low, and competitive pressure makes it worse. And deposit products like CDs are sometimes not even profitable, or essentially there as an offering for other bank products.

Bank stocks have been on a big run up lately, 2016-2018, with the expectation of rising rates, and less regulatory stipulations (i.e. Dodd Frank). Expectations of lowering rates will not be favorable, and that's why.

 

[_19disnA]

Not only savings rates also going down, but it gives the Fed less firepower when the economy is worse than it is to help soften the blow of a recession.... don't really think it's that bad yet.

I agree. Rates should not be held artificially low for extended periods of time in the hopes of stimulating the economy and/or inflating the stock market. Personally, I think they should be raising rates back to what is considered a normal level. The economy isn't turned on/off like a light switch and there will eventually be consequences for what they are doing. It also forces more of those on fixed incomes to move into the riskier stock market vs. making safe interest at the bank.

 

[Nick6300]

I agree. Rates should not be held artificially low for extended periods of time in the hopes of stimulating the economy and/or inflating the stock market. Personally, I think they should be raising rates back to what is considered a normal level. The economy isn't turned on/off like a light switch and there will eventually be consequences for what they are doing. It also forces more of those on fixed incomes to move into the riskier stock market vs. making safe interest at the bank.

10 yr US T-bonds are now only 1.86% and the 1 Mo T-bIll is 2.11%, crazy. The feared inverted yield. And that’s after the Fed’s decision with whom most expected. While savings rates are falling, there’s better returns than that in CDs and even some mmkts.

 

[Tink-aholic]

When I issue new loans I try to tempt you towards variable rate loans because banks borrow short and lend longer and it's easier to match cost of funds by locking in a margin. But most people want a fixed rate these days with such low, relative to history, rates.

Many people think lower rate environments help banks since they can give you less interest on savings. But lower rate environments are tougher for banks to be profitable. Big banks can have more than 3-1 deposits to loans, but most smaller banks, even large regional banks, are closer to 1:1 loans to deposits. And among other things, there is less margin over cost of funds for profit on loans when loan rates are low, and competitive pressure makes it worse. And deposit products like CDs are sometimes not even profitable, or essentially there as an offering for other bank products.

This makes sense. I refinanced my house to 3.65% just under 2 years ago and am furiously paying it off. Banks are always calling me and asking me to refinance again, offering me rates of 5%.

I keep thinking about my mom, who was newly divorced with two kids in the '80s. She was THRILLED when she could refinance from 11% to 9%.

 

[Nick6300]

This makes sense. I refinanced my house to 3.65% just under 2 years ago and am furiously paying it off. Banks are always calling me and asking me to refinance again, offering me rates of 5%.

I keep thinking about my mom, who was newly divorced with two kids in the '80s. She was THRILLED when she could refinance from 11% to 9%.

I think 30 yr mortgages topped out about 18.5% in the early 80s when the Fed was combatting inflation! I wasn’t around back then but that’s tough to imagine now.

Not that your asking - I’m just thinking of my own recent debate. Should I be paying down on my mortgage with only a 3.25% pricing. I don’t have credit card debt or any other loans. If you ask Dave Ramsey, a millionaire, he’d say, get rid of that debt, after you have a reserve and paid off your high interest debt. If you ask Billionaire Warren Buffett, he’d say - and he has said - I’d get 30 yr mortgages all day long- real estate is a rare appreciating asset where you can borrow for so cheap, that accounting for inflation, banks can literally be paying you!... to borrow long term at these low rates.

I think the answer is, it depends on your situation. Not very definitive, I know. But for me, I live in a very high tax state IL where property taxes are about 3x the average, and the new state and local tax cap of $10k pushed through by Trump, doesn’t allow me to benefit from deducting home interest - that could change of course. But that weighed in. Stock market returns have historically been better than my 3.25% mortgage. But that’s a guaranteed 3.25% return. And there’s the intangible value associated with the freedom of being ‘debt free.’ Now, some people aren’t disciplined. And paying off their mortgage doesn’t necessary allow them to save more afterwards, because they just have more disposable income to spend. I’m a decent saver, being a banker, I’m cheap and frugal. But even I’d spend more, if I had more, at least occasionally.

If my mortgage rate was low, and I already had other debt paid off, and not retiring soon, I tend to lean towards not paying it off early. Investing instead. Even if maxed out on 401k contributions and RIRA. But I wouldn’t borrow against my house to invest more in the market either. Especially not right now.

 

[jerseygal]

Is good for buyers and sellers. Hopefully, mortgage rates will remain low.

 

[barkley]

This makes sense. I refinanced my house to 3.65% just under 2 years ago and am furiously paying it off. Banks are always calling me and asking me to refinance again, offering me rates of 5%.

wait till you pay it off to really get inundated w/offers. i don't think there's been a single day since we paid off a few years ago that we have'nt gotten offers for helo's or massive lines of credit. we just toss them in the circular file.

paying off their mortgage doesn’t necessary allow them to save more afterwards, because they just have more disposable income to spend

that can def. be an issue. the mindset we took when we we paid off was that when we had a mortgage the bank owned the house and we paid the bank each month so once the mortgage was paid off WE owned the bank so we had to pay OURSELVES each month. i just changed the auto pay feature on our checking to take the previous mortgage payment and instead of it going to the bank it goes to one of our savings. where we've seen some more disposable income to use for 'fun' is when we've gotten small c.o.l.a. raises because previously those were immediatly earmarked to increase the principle payments on the mortgage in order to pay it off substantially early.

 

[RamblingMad]

This is terrible.

I’m rolling over my Treasuries into lower rates. I’ve bought out as far as a year and as short as a month.

Now, the lower ten year is going to make my move easier. I should be buying a house with a lower mortgage rate.

But in general this is awful. The cycle is pretty much over, so now the hard part is figuring out where to put cash.

 

[okeydokey]

This is bad news for savers and a poor indication for the strength of the economy, so nothing I will celebrate.

 

[havaneselover]

They made a mistake raising in December. Inflation pressures are weak. I’m glad they are trying to support the expansion which is in its 122nd month (a record).

 

[RamblingMad]

They made a mistake raising in December. Inflation pressures are weak. I’m glad they are trying to support the expansion which is in its 122nd month (a record).

Greenspan did this at the end of the 90s. It didn't end well.

Also, central banks around the world are dropping rates. I don't feel good about that.

 

[SDSUrulez]

I think 30 yr mortgages topped out about 18.5% in the early 80s when the Fed was combatting inflation! I wasn’t around back then but that’s tough to imagine now.

Not that your asking - I’m just thinking of my own recent debate. Should I be paying down on my mortgage with only a 3.25% pricing. I don’t have credit card debt or any other loans. If you ask Dave Ramsey, a millionaire, he’d say, get rid of that debt, after you have a reserve and paid off your high interest debt. If you ask Billionaire Warren Buffett, he’d say - and he has said - I’d get 30 yr mortgages all day long- real estate is a rare appreciating asset where you can borrow for so cheap, that accounting for inflation, banks can literally be paying you!... to borrow long term at these low rates.

I think the answer is, it depends on your situation. Not very definitive, I know. But for me, I live in a very high tax state IL where property taxes are about 3x the average, and the new state and local tax cap of $10k pushed through by Trump, doesn’t allow me to benefit from deducting home interest - that could change of course. But that weighed in. Stock market returns have historically been better than my 3.25% mortgage. But that’s a guaranteed 3.25% return. And there’s the intangible value associated with the freedom of being ‘debt free.’ Now, some people aren’t disciplined. And paying off their mortgage doesn’t necessary allow them to save more afterwards, because they just have more disposable income to spend. I’m a decent saver, being a banker, I’m cheap and frugal. But even I’d spend more, if I had more, at least occasionally.

If my mortgage rate was low, and I already had other debt paid off, and not retiring soon, I tend to lean towards not paying it off early. Investing instead. Even if maxed out on 401k contributions and RIRA. But I wouldn’t borrow against my house to invest more in the market either. Especially not right now.

The biggest thing when I talk to people about paying off their mortgage is their overall plan.... Getting access to the funds is usually a pain in the event of a emergency. 3.25% is a pretty modest return in even the most conservative portfolios. Furthermore, even though SALT is capped at 10K you can still deduct the interest if the mortgage is under 750K. So that 3.25% can easily be closer to 2.75%

 

[havaneselover]

Greenspan did this at the end of the 90s. It didn't end well.

Also, central banks around the world are dropping rates. I don't feel good about that.

I'd disagree that what Greenspan did in 1998 didn't end well.

 

[jerseygal]

The biggest thing when I talk to people about paying off their mortgage is their overall plan.... Getting access to the funds is usually a pain in the event of a emergency. 3.25% is a pretty modest return in even the most conservative portfolios. Furthermore, even though SALT is capped at 10K you can still deduct the interest if the mortgage is under 750K. So that 3.25% can easily be closer to 2.75%

There are much less taxpayers itemizing because of the SALT cap; most are taking the standard. There truly is NO tax advantage in home ownership anymore. Don't purchase a home for a tax advantage, there won't be one. If you are lucky, you will see appreciation. High tax states, NJ, NY, Ct home owners are getting killed!