A recent Bloomberg survey found that economists think the Fed will cut the federal funds rate by a quarter-point in their next meeting on Wednesday, September 18.
The survey also found that economists expect another cut later in 2019 to bring the overnight lending rate down to 1.75%.1
The Fed cut rates in July, marking the first cut since 2008. This cut marked a sharp 180-degree turn from its previous course of tightening policy and increasing rates.
Why did the Fed change course? There are a number of factors, but they all come back to one issue – the prospect of a recession on the horizon. Goldman Sachs recently reduced its GDP projections by 0.2%. Bank of America Merrill Lynch has also said that it thinks the odds of a recession in the next 12 months have increased to nearly 1 in 3.2
Recession fears may be driven by the ongoing trade war. President Trump announced $300 billion in tariffs on Chinese products effective September 1, although some of the tariffs were later delayed until after the holiday season. China then responded by announcing new tariffs on some American products. Many economists see these tariffs as a drag on gross domestic products.2
What do rate cuts mean for your clients?
The purpose of the rate cuts is to avoid a recession and minimize volatility in the financial markets. The S&P 500 is up nearly 20% in 2019. The rate cut in July and the expectation of future cuts have helped fuel that increase.3
It’s difficult to predict how rate cuts may impact future performance. It’s possible that the markets have already priced in the expectation of future cuts. If the Fed fails to deliver on those cuts, the market could respond negatively. There’s also the possibility that more rate cuts could deliver additional growth in the market.
It’s always wise to focus on the long-term and stick to your clients’ specific investment strategies. If your clients are concerned about the possibility of a recession or a market downturn, you may want to consider vehicles that offer growth potential without risk exposure. For example, fixed indexed annuities may help your clients capture upside without experiencing market volatility.
Ready to implement protection strategies for your clients? Let’s talk about it. Contact our specialists today. They can help you identify the right vehicles and strategies for your clients.
Contact CreativeOne today at 800.992.2642 and let’s start the conversation.