Money moves to make before the Fed lowers interest rates (2024)

FAQs

Money moves to make before the Fed lowers interest rates? ›

Open a high-yield savings account

Investors consider taking on more risk ahead of possible interest-rate cuts. Playing it safe paid off for investors in 2023 better than it has in years. Now, it could be time to take more risk with your money. Americans piled into the safe, guaranteed return provided by cash and cash-like investments in the past year.

Chair Jerome Powell and other officials, such as Loretta Mester, president of the Cleveland Fed, have underscored that the main factor in the Fed's rate-cutting decision is when — or whether — inflation will resume its fall back to the central bank's 2 percent target.

Invest in stocks

This leads to higher profits. In periods of rising interest rates, certain types of companies may benefit more than others. One example are bank stocks. Banks make money from the interest they charge on loans.

Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC that he doesn't think mortgage rates will reach the 3% range again in his lifetime.

The FOMC has met twice in 2024, first in January and then again in March. Since then, the Fed has predicted three quarter-percentage cuts throughout 2024, but only if the market allows. The remaining FOMC meetings this year are: April 30 and May 1, 2024.

Unsurprisingly, bond buyers, lenders, and savers all benefit from higher rates in the early days. Bond yields, in particular, typically move higher even before the Fed raises rates, and bond investors can earn more without taking on additional default risk since the economy is still going strong.

A rise in interest rates automatically boosts a bank's earnings. It increases the amount of money that the bank earns by lending out its cash on hand at short-term interest rates.

The general consensus among industry professionals is that mortgage rates will slowly decline in the last quarter of 2024. The projected declines have shrunk, though, in recent months. At the start of the year, for instance, Fannie Mae predicted rates would drop to 5.8%.

What is the best investment when interest rates are rising? ›

You can capitalize on higher rates by purchasing real estate and selling off unneeded assets. Short-term and floating-rate bonds are also suitable investments during rising rates as they reduce portfolio volatility. Hedge your bets by investing in inflation-proof investments and instruments with credit-based yields.

The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025.

Most economists, including Zandi, expect interest rates to fall fairly significantly in 2024 and 2025. Zandi is forecasting that the Federal Reserve will cut short-term interest rates four times in 2024 — a quarter-point each time. He expects another four rate cuts in 2025 and two more in 2026.

Projected Interest Rates in the Next Five Years

ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.