Rate-Cut News Keeps Coming: So What Actually Changes?
Articles keep pouring out every day, but I can't feel any difference, so I tried organizing my thoughts. Please point out anything I got wrong.
First, when interest rates go down, loan interest rates fall (with a lag), and deposit and savings rates fall as well. So if you stick only to deposits, there are periods where you end up relatively worse off.
The stock market usually treats rate cuts as good news, but a cut that was already expected can become a case of the news being priced in. I think this is why people get stuck when they jump in based only on news headlines.
Real estate has to be looked at together with lending regulations, so it's hard to talk about it based on interest rates alone.
In conclusion, rather than betting based only on the direction of rates, I think it's better to go back and review your own cash flow statement first.
10 answers
Agreed — it’s not the person who calls the direction of interest rates that pays off the loan; the cash flow statement is the answer.
Well, isn't the phrase "an already anticipated rate cut means the catalyst is gone" something people say only after the results are out? Then when and how do you determine whether a rate cut was anticipated or not? I think in far more cases, people get burned by headlines not because they failed to predict interest rates, but simply because they didn't evaluate individual stocks.
Do you have a source? I’d like to see figures on how much of a lag there is.
This is correct lol
You really can’t explain real estate with interest rates alone. Loan regulations, supply, and acquisition taxes are all intertwined—there are plenty of neighborhoods where home prices didn’t rise even when interest rates fell.
The claim that sticking only to deposits means losing out is a bit dangerous: for someone who needs principal protection, that's not a loss but a cost. A few years ago, I heard that line and went all in, hit -30%, and was emotionally wrecked for three years. Now I have 60% in deposits and the rest diversified; returns are lower, but I sleep well at night. I think the standard should be the volatility I can handle, not the direction of rate cuts.