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Teplitz Financial Group

The Fed Goes to Zero

Late Sunday afternoon, the Federal Reserve announced that it was cutting rates for the second time in three weeks, all the way down to zero, as a response to the COVID-19 pandemic. With this move, the Fed has officially used its most powerful ammunition in the race to combat the economic damage being caused by an event unlike any that has been seen in our lifetimes. 


Most, if not all, of the economic news you are hearing these days is bleak. But during these uncertain times there are still some diamonds in the rough—strategies you can use to make the best of our current situation. 


Refinance your mortgage. Even before the latest rate decrease it was a great time to refinance your mortgage. The cheaper the money is to borrow, the better interest rate you will be offered. Whether it means taking money out of your house to pay off old debt or just lowering your payment, low rates gives you, the payor has significant options. During volatile financial times, lowering your fixed expenses is always a good option. I would not hesitate to give your bank, lender or mortgage broker a call.


Invest new cash for the long term. Falling stock prices can represent a good time to invest cash that has been sitting on the side. That said, let’s define “cash that has been sitting on the side.” This is NOT cash that you know you need or may need in the short term (1-2 years). This is NOT cash that comes from your emergency fund (3-6 months of your basic expenses). This is NOT cash that comes from the sale of equities. This IS cash that is meant to be invested for the long term but that you have been holding on to in an effort to put it to work at the most opportune time. For that cash, a bear market is a great opportunity. Virtually all stocks are selling at a discount right now—stocks that were near their all-time highs just one month ago. Do it judiciously but take advantage of this long-term growth opportunity. 


Lessen your debt burden. Many of us carry credit card debt that we wish we could just shed. While there are few ways (the ones that exist are very painful) to get out of paying that debt, falling interest rates usually creates a rash of new low or zero interest rate credit card offers out in the marketplace. If you are carrying high levels of debt, now is a great time to look for ways to lower the amount of interest you pay. And if there are no rates out there that appeal to you, it is at least worth a call to the credit card company to see if they will negotiate. Now more than ever, they don’t want to lose your minimum payments. Same goes for personal loans and private student loans, by the way. Look for better rates, they very well may be out there. 


Much was made last week when, for the first time since the Great Recession, we entered a bear market. What exactly is a bear market? Technically, it is a 20% drop in a major index (in this case, the S&P 500) from a recent high. What is staggering about this bear market is that it happened in just 28 days. It was not that long ago that we were singing the praises of new highs across the board. But much like the coronavirus itself, the decline in value has seemed to get worse by the day. In less than a month, the coronavirus has essentially wiped out 18 months of gains.


As scary as those numbers sound, remember that a bear market is NOT a recession. Whether the current state of play will bring on a recession is simply unknown at this point. It can, and very well might. We got here because of the fear and economic anxiety being caused by the broader pandemic. Fear that the federal and state governments are asleep at the wheel. Fear that our national healthcare policy is not equipped to deal with the stress it is being caused. Fear about employment disruption. School closures. And of course, sickness itself. We didn’t get here because of a weak economy, which means we may be able to stave off what feels like an absolute free fall.


Fear is a powerful drug and it creates the justification of bad financial decisions. Just remember, we will get through this. And there are opportunities out there. Even on a bad day.


Please remember that during these challenging times, we are here to help. Never hesitate to reach out with a question, thought, or just to chat.


Wishing everyone health, happiness and clean hands through these challenging times.