Expectations that the Federal Reserve will cut its federal funds rate later this year are growing as inflation cools. While many are talking about how that may impact borrowing costs and interest rates on deposits, the impact of federal funds rate changes can go further than that. Changes to the federal funds rate can cause movement in other areas, like the stock, bond and precious metals markets.
'Lower rates could spur investor demand since fixed rate instruments will have less attraction, and hence, less competition for investor dollars,' says Miller. They say we could see a change in the market following the first Fed rate cut. 'Once we get the first rate cut, it will shift sentiment,' says Damsky. 'Investors will refocus their attention to when and how frequently the Fed will cut interest rates, not if they will decline.