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The Fed Cuts Rates: What Does This Mean for Investors?

  • Max Fountain
  • 24 hours ago
  • 2 min read
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A vast majority of the news in the financial world over the past couple of weeks has revolved around one topic: rate cuts. So what are rate cuts, and what does it mean to an investor? A rate cut is made by the Federal Reserve (Fed), and it lowers the federal funds rate —the short-term interest rate that banks charge for overnight loans. The rate being cut influences borrowing money across the economy, for example, for a mortgage or car loan. Put simply, a rate cut means lower borrowing costs and is intended to boost the economy. 


For someone who invests in the market, it is crucial to pay attention to the size of a rate cut when it is announced to the public. This time, the rates were cut by 0.25  percentage points, bringing the federal funds rate down to a range of  4% - 4.25%. What may seem like a small move in the rates can cause a world of change in the market. 


Lower rates make borrowing cheaper for publicly traded companies, and that can boost profits, along with pushing the price of their stock up. This could mean a boom in the market, like we have seen since the rate cuts were announced. Major index funds have reached an all-time high, like the S&P 500, Dow Jones, Nasdaq, and Russell 2000. The Fed is likely to cut rates again this year in October, and one more time before the year’s end. While there is no way to tell what the market is going to do, it can be advantageous to invest in the market to receive potential returns.


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