Navigating Potential Few Rate Cuts: Implications for Your Savings and Investments

As Certified Financial PlannersTM, we’re often asked about the Federal Reserve's moves and how they could impact personal savings and investments. At the highly anticipated Jackson Hole Economic Policy Symposium recently, Federal Reserve Chair Jerome Powell hinted at the possibility of a rate cut at the upcoming Fed meeting in September. Powell said, “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”. For those not fluent in “Fed speak” the key phrase of “may warrant” was interpreted as a clear signal that the Fed is leaning towards easing interest rates sooner than later. So, let’s break down the potential for these cuts, whether it's a smart time to lock in CD rates, and the broader effects on stocks and bonds. 

The Outlook for Fed Interest Rate Cuts 

Markets are pricing in a near-certain 25-basis-point rate cut at the Fed's September meeting, with probabilities hovering around 90% based on tools like CME FedWatch. Powell has indicated that conditions "may warrant" cuts, emphasizing a careful approach amid labor market concerns and inflation trends. However, the path beyond September remains uncertain, hinging on jobs reports and inflation readings. If the economy softens significantly, cuts could accelerate, but persistent inflation might delay them. 

Is Now a Good Time to Buy a CD? 

With CD rates currently peaking at around 4.0-4.5% for top offerings, this could be an opportune moment to purchase one before anticipated cuts pull yields lower. CD rates typically follow the federal funds rate, so a September cut is likely to trigger declines in new CD offerings this fall. If you're holding excess cash that you may not need to access for a while, locking in at today’s higher rates, especially for longer terms like 1-5 years, could provide reasonable returns even as the Fed eases in the future. Always consider your liquidity needs, as early withdrawals can incur penalties. 

Potential Impacts on Stocks and Bonds 

Rate cuts generally act as a tailwind for stocks by reducing borrowing costs for companies, spurring investment, expansion, and consumer spending, which can boost corporate earnings and stock prices. Historically, stocks have rallied during easing cycles, though the gains depend on the economic context. For example, if interest rates are being cut to avoid a recession, stocks could face increased volatility. For bonds, lower rates mean rising prices for existing bonds (due to the inverse relationship with yields), benefiting the bonds held today. New bond issuances will offer lower yields, so if you're buying bonds, acting before cuts could capture higher income potential. Stock and bond markets are very forward-looking, often pricing in anticipated interest rate changes well before they occur, as seen in the recent market reactions to Powell’s comments. 

Takeaways for Your Financial Strategy 

With a potential rate cut looming in September 2025, now may be a strategic time to secure higher-yielding CDs before rates decline, particularly if you have cash reserves for the medium to long term. Stocks may benefit from an easing cycle, but volatility could arise if economic signals weaken, so diversification is crucial. Bonds purchased today could offer both income and price appreciation as rates fall. Markets have already begun pricing in these changes, so acting promptly while staying aligned with your financial goals is key. 

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.  are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.  

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