Today is a big day for America’s financial system. At the conclusion of the Federal Open Market Committee (FOMC) meeting scheduled for 2:00 p.m. Eastern today, the Federal Reserve will announce whether it’s raising the federal funds rate again or just leaving it alone. Financial traders are already looking ahead and discussing what will happen after the Fed stops raising rates.
According to a Reuters report, the financial markets have already priced in a 99% chance that the Fed won’t raise the federal funds rate today. The Fed almost always does what the markets expect, although a surprise is always possible.
Still, consumers and investors should prepare for their next steps if the Fed does, as expected, “pause” interest rate hikes.
What to Expect If the Fed Stops Raising Rates
First and foremost, don’t expect anything in the economy to change dramatically and quickly. Interest rates, even after a “pause,” will likely remain elevated for a while.
Nevertheless, consumers can expect a little bit of relief if interest rates aren’t rising in the near term. They might choose to shop around for a lower-interest credit card. Additionally, they could negotiate for lower rates on their mortgages and other loans.
Unfortunately, a plateauing federal funds rate will also probably mean that your savings account, money market and certificate of deposit (CD) rates won’t go up. Again, shopping around for the best rates is always recommended, but just be realistic in your expectations.
The point is, don’t assume that interest rates will change quickly. If you’re getting 5% per year on a CD or money market account, you’re doing well and it’s not a bad idea to lock in those rates now.
What Can Investors Do Now?
Finally, there’s no need to radically alter your investment strategy if the Fed stops raising rates. The market is quite efficient and has undoubtedly priced a “pause” into stocks already.
If your current investment strategy is working well for you and is sufficiently diversified, then you’ll probably be fine. Holding shares of great companies is a valid all-weather approach, regardless of rate hikes, “pauses” and other central-bank policy changes.
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
