Between saving and borrowing after the Fed's interest rate cut

LOUISVILLE, Ky. (WAVE) – The Federal Reserve made a huge interest rate cut in September and you may be wondering what a rate cut means for me and my money?

Many hope this can bring some stability and lower prices in American homes, if possible. This is big news right before the presidential election and likely the last big move from the Federal Reserve before voters go to the polls.

Ryan Zabrowski is a portfolio and financial advisor at Krilogy, a financial planning and wealth management services company. He is also the author of Time Ahead: An Investor’s Guide to Prosperity and Impact in the New American Economy.

Zabrowski wants people to understand the major changes that will impact capitalism and their investments.

“The Federal Reserve is the central bank of the United States,” Zabrowski explained.

The Federal Reserve is the most powerful economic institution in the United States, if not the world.

The Fed’s job is to help maintain the security and stability of the national economy and financial system, as well as to maximize employment and minimize unemployment. The Federal Reserve made its first interest rate cut in more than four years on September 18, by an unusually high 0.5%.

This lower rate makes money less expensive to borrow, which increases your purchasing power.

“When the cost of money is cheaper, we borrow money,” Zabrowski said. “We buy houses. We buy cars and it really stimulates the economy.

Inflation has hit American families in recent years. Zabrowski said we deposit money in the bank and the bank pays us interest in return.

“People who earn interest on their bank deposits will receive lower interest in the future,” Zabrowski explained.

With the Fed’s budget cuts, high-yield savings accounts, certificates of deposit or bonds may be things to consider if you’re looking for a higher rate of return. After the rate cut, money is cheaper. This could be good or bad.

“It depends on whether you’re a saver or a borrower,” Zabrowski said. “If you are a borrower, lower yields are a good thing. If you’re a saver, lower returns are bad.

Savers, banks and retirees may feel some pain from the Fed’s rate cut, as they will benefit from lower yields and interest.

“So for those who provide money to banks, the decline in yields on our deposits is not as good as it was before the rate cut,” Zabrowski said.

Zabrowski also warns that cheap money can push some to make risky investments. You still have to be intelligent.

“If you think the grass is greener somewhere other than where your money is, you really need to understand what’s going to happen to that money,” Zabrowski said.

Plan, prepare and take care of your money now and for the future.

“If we did it, when we did it, we would end up having… another recession,” Zabrowski stressed. “It’s not a prediction, it’s just an inevitability.”

By the traditional definition, the United States is not currently in recession. The Fed’s next policy meeting will take place on November 6-7, immediately after the presidential election.