4 Seasons Podcast

How Fed Cuts Ripple Through Mortgages, Markets, and Your Monthly Budget

• Jeff Bingham • Episode 18

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Lowering Interest Rates And Monetary Policy Shifts...How Can They Impact Me?

Rate cuts make headlines, but the real story lives in your monthly budget and long-term plan. We dig into how a lower federal funds rate filters into mortgage payments, credit card APRs, small business borrowing, and diversified portfolios—then separate smart, actionable moves from costly knee-jerk reactions. Jeff Bingham lays out where refinancing can free up cash, how to compare closing costs to monthly savings, and the moments when a lower payment strengthens your balance sheet instead of just stretching your lifestyle.

We unpack the credit card angle too: as the prime rate eases, carrying costs can fall, giving you a window to accelerate payoff and redirect dollars to principal. For business owners, cheaper capital can justify upgrades and expansion, but only when the expected return clears the interest hurdle with room for risk. On the market side, we explain why bond portfolios can rally as yields drop, how total return works, and where duration and quality matter for stability and income as savings account yields slip.

Through it all, the message is steady and simple: don’t rewrite your investment plan because of a press conference. Rebalance if needed, run the numbers on a refi, tidy up high-cost debt, and stress-test any borrowing against your goals and time horizon. If you want help turning rate moves into real-world progress, schedule a free 20-minute consultation at 423-247-1152 or bhretire.com, and share your top question—what’s the one money move you’re considering right now?

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

SPEAKER_00:

Welcome to the Four Seasons Podcast, brought to you by BH Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here, we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect, and enjoy your wealth. Ready to turn your financial dreams into reality? Dare to dream. And now, here's your host, President of BH Wealth Strategies, Jeff Bingham.

SPEAKER_01:

When the Fed makes a move, your wallet feels it. In this episode, we unpacked how interest rate changes and monetary policy shifts ripple throughout your financial life, from mortgages to market moves. Welcome back, everyone. Skip Monty, co-host slash producer back in the studio with president of BH Well Strategies, Jeff Bingham. Jeff, how's it been going? It's been going great. Skip, how you been? I've been just fine, just fine, ready for ready for fall. Although spring's my favorite season, but uh like fall as well, especially up here in the mountains.

SPEAKER_02:

Yeah, well, it's yeah, it gets pretty pretty scenic around here. Come come this time of year and go through, drive through the uh up on the on the parkway and watch the leaves turn and get in there with all the other tourists that go and do that. I started to say it's beautiful, it really is. It's it is beautiful, and like I said, I think we're very blessed to live where we do in this part of the world because we do get, as you were talking about, your favorite seasons, we get a little bit of all four, and and but winter's not too brutal, and so it's just a it's a nice, this sweet, this sweet spot place to live right here.

SPEAKER_01:

Amen, brother. Well, Jeff, it's great to see you again, and I'm ready to dive in. How can lowering interest rates, and this is very timely, lowering interest rates and monetary policy shifts impact the average person?

SPEAKER_02:

Well, there's a simple question to just to throw me back into this thing after coming off a vacation for a week. I appreciate that. No, well, I mean, the first thing that, and we've already seen evidence of this, I think, is that it how it affects people's pocketbook, it lowers the lowers the borrowing rate. So, you know, mortgage rates, I think, and I can't say exactly where they were right before the Fed cut, but we're, you know, we've we've trended not only down below 7%, which we stayed above for for a long period of time, even touched up in the 8% range on 30-year mortgages, but now we've dropped, I think I saw today the average 30-year rate right now in the United States is 6.33%. So that alone right there, you know, should provide some, which a pretty anemic housing market now. And anemic may not be the best word to use, but I've used it, so we'll keep it there, you know, to try to revive a little bit of energy, if you will, into that, into that market because it's extremely important to the United States and the economic growth and and uh just kind of stimulating the economy in general. It also with the rate dropping to 6.33, I think one of the interesting things that that we've seen, and for the this is for the first time in since 20, you know, probably before 2022 and rates started going up, you've seen some revival in the in the refi market and the refinancing market, because those that bought, you know, at least after the back half of 2022, maybe the latter half of 22, 23, and then 24, and then even you know, some earlier this year, you know, those rates, as I was talking about, were in that seven, seven and a half, eight percent, maybe even some a little above eight percent, and now at six point three three, it it certainly begs a look to see if a refinance makes sense. And so we're seeing a lot of consumers begin to do that. And so again, that when you can get mortgage rates lower, you can you can buy the houses because the housing market to move for those that are refinancing, you know, whether they whether they're trying to take some equity out or not, that's a different topic. But what it does reduce is their payment. So if you reduce your payment that you're making on your mortgage payment, then you've got more money to spend and or save, you know, into your future U, if you will. So that's that's first and foremost. It also it's going, it will affect the prime rate, and the prime rate is what affects credit card rates. And so the I think the and the prime rate is a blend, uh, you know, it's a blended rate, which includes the uh which includes the federal funds rate. And that's today at 7.25. So it's three, and the federal funds rate is what they did, what the Fed did last week, they lowered the rate to 4.25. That's where the federal fund rate resides today. And like I said, that federal funds rate really doesn't affect anybody probably listening out there directly. It's what we're talking about on the indirect, because that's the basically the rate of money that is that we're the Fed loans to banks and reserves and all the things that kind of the intricacies of of the banking system, but it has, as you I think eloquently put before, the ripple effect down from that that we're talking about right here. And thus that prime rate, though, you know, prime rate sets, as I said, sets credit card rates. So we've just seen credit card rates begin. Those, you know, where people that have balances on that, that begin to come down. And that's that'll be helpful because a lot of people, you know, when rates were low, people use credit like crazy, and they still do. Uh, and you know, when you're paying, you know, when you've got a$10,000 credit card balance and you're carrying that, that's$2,000 a year. That's$166 a month, just of interest payment, if you will, on that, you know, using a 20% easy math for me to kind of calculate out. So if that comes down just a little, you're just kind of freeing up some money to maybe now I'd be a good idea, as opposed to you know, paying so much towards interest, you get to pay a little bit more towards, you know, whittling away that principal on there, which again reduces the interest cost, interest rates are going down. It's just a win-win-win across the board right there. And then I think what what else it does is that when, and I think this is very important for the overall, you know, kind of the you know, if you will, the macroeconomics of it would be that it's going to stimulate small businesses to be able to go out and borrow at a much lower cost to where so they can add things that they need to their business, whether they need capital improvements in computers or you know, for whatever they need to do. They can kind of build, expand, and and and grow their business. Uh, and oftentimes in small businesses like ours, we use we use leverage, we use borrowing credit to do that with. And so when that credit cost is lower as it's going right now, then it will allow small businesses to go out, as I said, to kind of expand and then have less cost, maybe some less cost on what they've already done in the past and and and currently in the present as well. So it just, you know, it's I think my personal opinion is that this is a good thing. The Fed lowered a quarter basis point. They're pointing towards probably two more quarter points. You know, maybe that's kind of the conventional wisdom, you know, that's kind of what we're pointing at. So we cut by three quarters of one percent from now, you know, the one that's already included, and then two more cut in three-quarters, which will get us below four, it gets us to 375 by the end of the year. We'll see. I mean, you know, the Fed will always say, well, we're data dependent. We'll see what the data indicates right there. But you know, right before the federal the Federal Reserve meeting last week, the week prior at the end of the prior week, we saw inflation numbers come in very tame and lower. So we we saw good, you know, CPI numbers, consumer price index. And we also saw a number the week before that of the what we call the PPI of the producer price index, how we what it cost to manufacture and produce goods and services out there. And that number came in well below expectations on a basis. So, you know, it was kind of the trajectory was already there for the Fed to do it. That obviously set the stage for that. You know, the employment numbers kind of keep getting jiggered around a little bit, but employment rate, you know, employment is softening a bit. So you know the Fed mandate is to keep stable prices and to try to get the economy to full employment, to try to find that, you know, really that sweet spot, you know, right there, kind of in the pocket.

SPEAKER_01:

Not too hot, not too cold. So are there specific strategies that you recommend for you know folks like me, you know, average people during low interest environments if if this continues to go in the direction we think it is?

SPEAKER_02:

I don't think not really, because interest rates are gonna they're gonna go up, they're gonna go down, they're gonna stay stable, and we're gonna we're gonna gnash and gash and chew on them all the time. But again, as your situation changed, what's really different? You feel better about it because you see the market going up and rallying around an interest rate cut. But those are, you know, that's that's chasing, that's chasing return, you know, and trying to to guess and time and all these things. I mean, if you you know you look uh you know out there as an example, you know, the market went up today, the Fed lowered when the announcement came out on Wednesday. Um, but we've sold off a little bit, you know, last in the last few days. So those, you know, it's you really don't you don't change. I think what you look at is that, and you don't go out and borrow money, you know, take an equity loan out of your house and go buy stocks because you know interest rates are low. There was a lot of that kind of talk that went on, you know, and I'm and I'm not gonna just completely say nobody should ever do that. That's that's a different individual, that's a one size fits one conversation. But generally speaking, to borrow money to put into the market and invest is a pretty phrase that I want to call it a dumb idea, that's a pretty risky endeavor, right? Those are not the same things. So maybe, you know, it would be maybe fool's goal, something like that. But I think, you know, but again, I think if I've got a if I'm sitting in in front of a client and they bought their house, you know, sometime within the last couple of years, right? And they have an inter a mortgage rate that's at seven and a half or seven and three quarters or something like that. And I just said, you know, where it's six and a third right now on interest rates, you know, it it begs a look at seeing what a refinance would look like. I mean, there's some cost in refinance, there's no question about that, but is that cost and that cost savings of that lower interest rate and that payment differential, how does that impact you individually? So I think those are the things, you know, where you begin to look, you know, and like I said, if you're talking to a small business owner, then you're kind of having the same conversations, but you're also looking at, you know, expand, if we're looking to expand and we're gonna have to expand using leverage and those kind of things, then you begin to look at the cost of borrowing now versus what it was. Is this the time to do it? But you know, you might argue that, well, the Fed's gonna cut, you know, at least they're you know, they're they're on target, if you will, to lower rates, you know, two more times this year. But that didn't mean they will, right? Because again, it's it's data dependent. I mean, what what could happen between now and the next Fed meeting? Well, lots of stuff could happen, right? You know, we're uh you know, there's a little unrest around the globe, to say the least, you know, at the at the moment. I think, you know, you know, just kind of using Ukraine and and Russia as an example. I mean, that's a pretty hot spot that we you know, we tend to kind of glide through right there. But those kind of things right there can send some shock waves, you know, into the overall economy, and that can change the Fed's trajectory, you know, of lowering rates. So, like I said, I think it's just a one, it's always a one-on-one conversation. You know, what does your situation look like? But you don't really change your investment strategy because the Fed lowered rates. Now, it it would tend to boost what investment strategy you have, right? I mean, if interest rates are falling and you've got a, you know, what what what conceivably academically will happen in a rising or excuse me, in a lowering interest rate environment, if you're using a portfolio that has the combination of stocks and bonds in it, then your bond portfolio, where you own rates at you know, at 4% or 5% and rates are now at 3%, you're getting some price appreciation out of the bonds you own plus the yield that you're already getting. So your bonds are rallying up. You're not just clipping the coupon, if you will, not just receiving the insurance, you're getting what we call total return, which is price appreciation plus the interest that it's paying. So that's a nice, that's the total return. So your bond portfolio could strengthen. And then also the stock market tends to, right? It likes lower interest rates, it likes the lower cost of borrowing, it likes you know, a looser monetary policy, if you will. And so stocks tend to rise, not always, but tend to rise in a in a lowering interest rate environment. But again, the reason why you lower interest rates, or one of the reasons if the if the Fed funds are to do it is to stimulate the economy. Well, if we're stimulating the economy, that suggests that that we're not as strong economically underneath as we want to be, right? And if employment is a little soft, so we're lowering to try to stimulate or keep it moving and percolate and going forward. So it's a you know, it's kind of a strange thing to say that we're usually we are lowering rates because we we're slowing economically, right? To a degree. That's one of the things. But yet the market's going up as rates lower, right? I mean, it's like, oh, we're in trouble, but we're lowering so the market, you know, goes up. So there's a lot of there's a lot of zig and zag that goes on and kind of moving, maybe in a little bit of contradictory or a convention, you know, kind of just where rational thinking might might think that markets and how they might move and how bonds might move, you know, in this kind of environment. Because a lot of times people think, well, you know, it's it's bad for my fixed income portfolio if rates go down, right? Not in a bond portfolio. If you own bonds that are yielding higher than what the current rate is going to be, it's good for your bond portfolio. Now, if you're going to the bank to to open up a savings account or CDs, those rates are lowering. So if that's if that's the kind of savings and investing you're doing, then yeah, it it that's a that's a different that's a different conversation.

SPEAKER_01:

Wow. So in a nutshell, one size doesn't fit all. It depends on your situation and if things have changed.

SPEAKER_02:

Yeah, it never it never does. Like I said, that was I'm sorry, that was a long-winded answer to what your short question was. But you know, like I said, I think, again, going back to it, you because the Fed lowers rates, the Fed, the Fed increases rates, doesn't mean you change. That's not a change to your plan, right? A change to your plan is there, you know, have your circumstances change, right? The economics, the economy, and the economics of things are gonna change all the time. That doesn't mean you don't do anything to your portfolio. That's not what that means either. But you don't really make just wholesale changes because, oh, Fed's lowered rates, let's take more risk, let's throw more money at the market, let's do those kind of things. I mean, that's I get that kind of sensation because we're used to to oh, the Fed lowers, it's gonna be good for the stock market, so therefore I need to pour money into the stock market. Well, you know, I mean, the Fed just lowered rates essentially when the market is at an all-time high. I mean, is that when you, if you've been kind of cautious on things, is that when you want to pour a bunch more money in, right? I mean, that's you know, what goes up, you know, does come down some. So, you know, just be, you know, stay true to your plan, have a conversation, an honest conversation with yourself as a as an investor and a and your plan, and then have an honest conversation with someone like me to to see, you know, what should we do? Where am where am I? Where do I want to go? How do I want to get there? And does a Fed lowering rates or a Fed raising rates, does that impact either any of those three things right there? And the answer is probably no, it doesn't.

SPEAKER_01:

Great advice, Jeff. Thanks so much. Appreciate you. Glad we got you to break this stuff down because it's you know, for somebody like me, it's super complicated. But so thank you for that. And we'll look forward to seeing you next time for more financial clarity and smart planning with BH Wealth Strategies.

SPEAKER_02:

It's my pleasure, Skip. Thanks, and you have a great weekend. All right, you too. We'll see you soon.

SPEAKER_00:

Thanks for tuning in to the Four Seasons Podcast, brought to you by BH Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretire.com. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc., member FINRA SIPC. BH Well Strategies and Silver Oak Securities Inc. are not affiliated.