Fed Rate Cuts

Fed Rate Cuts

Dear Garden State Trust:

The Federal Reserve cut interest rates by half a percentage point on March 3. What does that mean for my portfolio?

—Skittish Investor

Dear Skittish:

Normally the Federal Reserve makes interest rate adjustments at its regularly scheduled policy meeting. The rate cut on March 3 was between meetings, which is the first such Fed action since the 2008 financial crisis.

The move was made because the Fed is worried about the possible economic repercussions from the coronavirus that originated in China and now is traveling around the world. Several companies have already announced disruptions in their supply chains that will adversely affect them. The social consequences if populations panic could be severe as well.

Normally an interest rate cut boosts the value of the bonds you already own. Normally stock prices tend to rise on an interest rate cut, as investors may be unsatisfied with bond yields and expect the rate cut to stimulate the economy.

However, these are not normal times. After going into a correction (down 10% from the high) at the end of February, the stock market came into March like a lion. The extreme volatility is likely to continue under the full ramifications of the virus becomes known.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

 (March 2020)
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