Elite Capital International: Fed slashes Interest rates as Covid-19 Fears remain
Just as investors have thought, U.S. Feds (Federal Reserve) really slashed down its interest rate by 0.50% to a range of 1 – 1.25%.
The statement reads as follows:
"The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy."
However, lowering interest rates won't be of help for everyone. There are only few of them that will benefit on this sudden trimming, and they are listed below;
- Pros: Lower rates are great for people who are getting a mortgage or refinancing an existing mortgage and also those with adjustable-rate mortgages will also benefit from lower rates.
- Cons: Those who are unable to take advantage of lower rates, maybe because they're their house is underwater or they are locked in a fixed-rate mortgage and the current rates are not quite that low to refinance.
The stock market
- Pros: Stock investors did well as it became clearer that the Fed was on board to lower interest rates. The market pushed up many stocks in anticipation. Bond investors have also done well, as lower rates — or the expectation of them — raised the price of bonds.
- Cons: Paradoxically, while stock investors may benefit in the short term as rates decline, the increased prices may set up investors for losses in the medium term. If the economy weakens further and the Fed cuts rates again, investors may begin to anticipate that a recession is looming and quickly sell off stocks. So today's winners can quickly become tomorrow's losers.
For more finance news on the global economy visit us at Elite Capital International site: https://elitecapitalinternational.com/
Elite Capital International Limited