The Fed SHOCKED Wall Street With Their Rate Cut
Published: 2024-09-19
Status:
Available
|
Analyzed
Published: 2024-09-19
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
Interest rates on high-yield savings accounts are expected to decrease due to the Fed's rate cut.
"you can expect to receive an email saying that the interest rate you're getting paid is getting slashed because now the Federal Reserve Bank is also cutting interest rates."
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Mortgage rates, car loan rates, and credit card debt rates are expected to decrease.
"So, you can expect rates to fall."
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The Federal Reserve Bank cut interest rates by 0.5%, which was more aggressive than the anticipated 0.25%.
"And they shocked Wall Street while doing it because Wall Street thought that the Federal Reserve Bank was going to cut interest rates by a quarter of a percent. But instead, the Fed came in more aggressive and cut interest rates by half a percent."
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Jerome Powell stated that the inflation fight is over, and the Fed's focus is now on stimulating the economy and job market to avoid a recession.
"Jerome Powell said that the inflation fight is over and now the Fed can focus in on stimulating the economy, stimulating the job market, and hopefully avoiding a recession."
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The Federal Reserve Bank has gained confidence that inflation is sustainably moving towards 2% and risks to employment and inflation goals are balanced.
""The committee, meaning the Federal Reserve Bank, has gained greater confidence that inflation is moving sustainably towards 2% and judges that the risk to achieving its employment and inflation goals are roughly in balance.""
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Interest rates on high yield savings accounts are expected to be slashed due to the Federal Reserve Bank cutting interest rates.
"you can expect to receive an email saying that the interest rate you're getting paid is getting slashed because now the Federal Reserve Bank is also cutting interest rates."
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The video will explain the reasons behind the current interest rate cuts.
"So, what I want to do in this video is go over three things. Number one, how do we get to this point with interest rate cuts?"
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The video will discuss the implications of the interest rate cut on mortgage rates, car loan rates, and credit card debt.
"what does this mean for mortgage rates, car loan rates, credit card debt, and everything in between?"
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The video will analyze the impact of the interest rate cut on stock market investing and other asset prices.
"what does this mean for stock market investing, and other asset prices?"
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In 2019, the Federal Reserve proactively cut interest rates three times, bringing them down from 2.5% to 1.75% due to worries about an economic slowdown.
"If you remember, back in 2019, the Federal Reserve Bank had interest rates at around 2.5%. ... Then in 2019 we had worries about an economic slowdown. ... So the Federal Reserve Bank proactively started cutting interest rates in 2019. We cut interest rates three times. So interest rates came down to 1.75%."
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In 2020, due to the pandemic, the Federal Reserve Bank cut interest rates to zero.
"And then of course came 2020 the pandemic. We already had low interest rates going into the pandemic. Now we had the pandemic. And that was when the Federal Reserve Bank cut interest rates to zero"
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In 2022, the Federal Reserve Bank began raising interest rates to combat inflation after having 0% interest rates in 2020 and 2021.
"So in 2020 and 2021, we had 0% interest rates. But then came 2022 and we had an inflation problem. And to fight this inflation problem, the Federal Reserve Bank then began raising interest rates."
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Interest rates were raised to 5.5%, the highest in over two decades.
"And they raised interest rates to 5.5%, which was the highest interest rates we've seen by the Federal Reserve Bank in more than two decades."
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High yield savings accounts were offering returns of 5.25% to 5.5%.
"high yield savings accounts are paying five five and a quarter. Some even paying 5.5% in interest on your savings."
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The Federal Reserve Bank is cutting interest rates again, believing inflation is no longer a problem and it's time to stimulate the economy.
"And now here we are with the Federal Reserve Bank beginning to cut interest rates again because they believe that the inflation issue is no longer a problem. And now it's time to stimulate the economy."
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The current rate of inflation is 2.5%, with the Federal Reserve Bank's target being 2%.
"inflation currently, the rate of inflation has come down to 2.5%. Remember, the Federal Reserve Bank wants to see 2% inflation"
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The unemployment rate has increased to 4.2%.
"and unemployment has jumped up to 4.2%."
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The Federal Reserve Bank is becoming more aggressive with interest rate cuts to stimulate the economy due to the current economic conditions.
"And this is why the Federal Reserve Bank is now pivoting and they're changing their stance and they want to get more aggressive with interest rate cuts because they want to stimulate the economy."
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Mortgage rates, car loan rates, and credit card debt rates are likely to fall as the Federal Reserve Bank begins cutting interest rates.
"So there is a chance that you will see or likely chance that you're going to see mortgage rates and car loan rates and credit card debt rates also fall because now the Federal Reserve Bank has all has now begun cutting interest rates."
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There is a concern that the inflation problem is not over, despite the Federal Reserve Bank raising interest rates aggressively to combat it.
"But the concern I want you to think about is the Federal Reserve Bank raised interest rates aggressively to fight inflation. And the inflation problem is not gone."
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The Federal Reserve Bank plans to continue cutting interest rates through 2024, with further cuts anticipated in 2025 and 2026, which could lead to substantially lower mortgage rates.
"And if mortgage rates fall substantially enough because the Fed says they're going to continue cutting rates through 2024, they want to cut rates even more in 2025 and maybe even more in 2026."
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Continued interest rate cuts and falling mortgage rates may lead to excess demand in the mortgage market.
"So if the Federal Reserve Bank continues cutting interest rates, mortgage rates continue to fall, will that create an excess amount of demand in the mortgage market?"
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If mortgage rates fall to 5%, it could lead to more people making offers on homes, increased bidding wars, and a subsequent rise in home prices.
"And so, if more people say, "I can afford a mortgage at 5%." Does that mean that more people are going to go and start making offers on homes? And if they do, does that mean we're going to start to see more bidding wars? And if they do, does that mean the home prices are going to start to shoot up even more?"
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A rise in home prices due to increased demand could worsen the inflation problem.
"And if that happens, does that make the inflation problem worse?"
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Mortgage refinancing has seen a 100% increase over the last year due to a slight fall in mortgage rates over the past 30 days.
"And what we've already seen happen as mortgage rates have fallen slightly over the last 30 days, refinancing has shot up. We've seen about a 100% increase in mortgage refinancing over the last year."
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The stock market's movements are driven by market expectations of future economic conditions, rather than a direct linear correlation with the current economy.
"The stock market is not moving linear with the economy. The stock market moves based off of what people think is going to happen in the economy."
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The Federal Reserve Bank's interest rate cut on September 18th was anticipated and already priced into the markets, meaning it was not a surprise.
"And pretty much everybody on Wall Street anticipated a Federal Reserve Bank interest rate cut on September 18th. The Fed has been hinting about it. They've been talking about it for a while. So the Federal Reserve Bank cutting interest rates is not a surprise and that had already been priced into the markets."
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The Wall Street adage 'buy the rumor, sell the news' implies that markets react to anticipated events before they occur, diminishing their impact when the actual news is released.
"So there's a saying on Wall Street that goes buy the rumor, sell the news. And what that means is when you hear news of something happening, the markets already react to that. And then when the news happens, it's not as big of a deal as many people expect because it was already priced in."
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The impact of interest rate cuts on the economy will subsequently affect the stock market.
"what is this going to do to the economy and what will that then trickle down to in the stock market?"
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Predicting short-term stock market movements (daily, weekly, monthly) is impossible.
"trying to predict day-to-day swings in the stock market is impossible. No one knows what's going to happen tomorrow or next week or the month after that."
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Over the long term, there is an increasing correlation between the stock market and the economy, despite not moving linearly.
"while the stock market and the economy don't move linearly over the long term, we do start to see more of a correlation between the stock market and the economy."
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Lower interest rates aim to make borrowing cheaper for businesses, facilitating growth.
"the goal is to make borrowing cheaper for businesses. That way businesses can grow bigger and so they can borrow money cheaper."
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The Federal Reserve Bank is aggressively cutting rates due to the highlighted risk of an economic slowdown and to prevent a potential recession.
"the risk that the Federal Reserve Bank has highlighted along with many other economists is that there's also a risk of an economic slowdown. That's why the Federal Reserve Bank is cutting rates so aggressively because they want to prevent this recession that people are talking about."
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An economic slowdown would negatively impact markets, while successful economic stimulation could positively affect them.
"If we see an economic slowdown, that would eventually trickle down to the markets. But if we do stimulate the economy more than the economic slowdown, that can also trickle down into the markets."
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Lower interest rates encourage more people to borrow and buy homes, potentially increasing home prices due to higher buyer demand.
"When interest rates go down, more people can go out and borrow money and buy a home, which can then push home prices up because you have more buyers out there."
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The key question for the next 30 days is how much mortgage rates will decrease and what impact this will have on mortgage applications.
"So, the question that everybody will want to see is in the next 30 days, how much lower are mortgage rates going to go and what is that going to do for mortgage applications?"
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A rise in home prices could benefit homeowners but potentially worsen inflation.
"And if that happens, that could push home prices higher, which could make home prices higher for people that own homes, which is good, but it could also make the inflation problem worse."
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