Barron's: Cuts Will Hurt More Than Help
Barron's writes, "Cash Yields Are Going Down. Here's Where to Move Your Money." The article comments, "The Federal Reserve's expected interest-rate cuts are a double-edged sword for consumers: bad for savers, good for borrowers. The upshot of Wednesday's quarter-point cut will depend on your household's mix of assets and liabilities. Do you have a lot of money parked in money-market funds? Are you looking to buy a house, refinance your mortgage, or whittle down credit card debt? On balance, Fed rate cuts reduce household discretionary income, David Kelly, chief global strategist for J.P. Morgan Asset Management, wrote in a recent note. The decline in income from money-market funds and other instruments generally exceeds savings on mortgage and other debt. Most mortgages are fixed, so they won't adjust lower on Fed action, and the majority were issued at low enough rates that they won't benefit from refinancing, Kelly notes." The piece continues, "That said, there are steps consumers can take to make the most of what's to come. 'This serves as a wake-up call for people to at least check how they're thinking about their cash and where to make risk allocations going forward,' says Jerome Schneider, head of short-term portfolio management at Pimco." Barron's adds, "Cash rates have drifted down over the past year, but they're still attractive -- in the 4% range for money-market funds, high-yield savings accounts, and other products. Expect to lose a quarter point on money-market funds after the Fed cut by that amount on Wednesday, although it usually takes a little time to filter through; yields on high-yield savings accounts don't move in tandem with the benchmark rate, but generally trend in the same direction. Yields on both will keep falling if the Fed follows through with a couple more cuts this year, which policymakers project the economic data will justify."
