00:00 Speaker A

Well, Federal Reserve officials are split on whether an interest rate cut in July is on the table, depending on whether the FOMC holds rates steady or reduces the benchmark rate. What does that outcome mean for your everyday finances? Here to explain and discuss further, we've got Rob Conzo, who is the Wealth Alliance CEO. Rob, good to have you here with us. How does the Fed's benchmark rate affect people's personal finances?

00:28 Rob Conzo

Great to be with you, Brad. Um, it's a very misunderstood rate. It's the rate, the rate that banks charge each other to borrow money, but how does that affect you personally? Well, first thing it affects you either way. Number one on the expense side, meaning borrowing. So we all know that, right? We have mortgages, and credit cards, and auto loans, and student loans, and, and small business loans. So when the Fed sets a rate, right now it's between four and a quarter and four and a half, well, then all the banks look at that rate and decide where they're going to charge you for the debt side of it, your expense. And let's not forget half of the American economy is small business. So when they have to pay more for lines of credit loans, well, it hurts them, they hire less, and it's a problem for the economy. That's why everybody wants the Fed to lower rates.

01:58 Speaker A

So Rob, let's get specific. How are mortgage rates impacted by the Fed's next move? And what does and does a cut mean that we could see lower mortgage rates as well?

02:20 Rob Conzo

Yeah. So the longer you go out with lending, the longer other factors are involved. I'll give you an example. Let's talk about money markets. That's money you're earning. Well, that's every single day, and all it matters is what the Fed's going to charge, and what the bank wants to make. And there's a rate, a mortgage, money expense, you're spending. Well, that's different. Now suddenly the bank goes, alright, let's see what the Fed is going to charge. Four, four and a quarter. Okay. Now, you want to get a mortgage. So the Fed rate is one aspect. Uh, how much of a mortgage is a second. How long are you going out? What's your salary? How the house is valued at. So the longer the debt, the more Fed rates, uh, the more your personal stuff gets involved and muddies the water between just the Fed rate. So the Fed rate is just a little part of it when you're going out longer.

04:10 Speaker A

You know, while we have you here now, let's go to credit cards. Say, you know, maybe not me, but somebody I know has a lot of debt, debt and, and uh, racked up here. Will a lower benchmark rate from the Fed mean that I have to pay less interest perhaps?

04:51 Rob Conzo

Great question. The credit card one is the one that's a little unique in the sense that credit card companies charge upwards of 15, 20, 25% in interest. And you're saying to yourself, well, how could it be so high? And it's so high because credit card companies want to make a lot of money. So at the end of the day, there's so much leeway in the credit card company. You would think if the Fed lowered rates, you would see credit card rates come in as well. That may not be the case. Some credit card companies just hold it steady and it is what it is. I'll tell you, give you another example. Sometimes, forget credit cards, again, when you had a bank savings account, and you're getting very, very little interest rate, but yet the Fed's rates at 4 and a quarter, 450. Why is that the case? The bank has the right to say, look, we're only going to give you 0.2%. Meanwhile, another brokerage account could give you 4% on a money market. So there is business parts of what the interest rate you pay or you receive on top of the Fed rate mandated.

07:05 Speaker A

What about savings vehicles like CDs, certificates of deposit? How are they impacted depending upon the Fed's decision?

07:21 Rob Conzo

So CDs, saving vehicles of all sorts, money markets is a is a standard one. Bank savings accounts, people know. Again, there's two aspects of it. Fed, surely, if the Fed raises rates like they have, well, then you're going to typically get more in bank savings accounts and CDs. And we've seen that, people getting 5% CDs. The Fed starts lowering rates, if they do, and we don't think they're going to be doing that this July, but good chance they could be doing that in September, the Fed starts lowering rates, you'll see those CD rates and savings rates come in. And that's why a lot of financial advisors are saying, hey, you may want to lock in a longer rate now while it's still high before the Fed cuts.

08:58 Speaker A

And finally, while we have you here, Rob, when the Fed finally cuts interest rates, should you adjust your, yeah. Should you adjust your financial plans, things like your budget or borrowing or, should you just stay the course?

09:45 Rob Conzo

Now, um, it's a very good question. And it it depends really. A lot of answers to financial questions are, it depends, unfortunately. But the real answer is when the Fed starts cutting rates, if it's just very, very minimal, a quarter of a point, um, that's not going to make a big difference on things. But as things start to go down further, if they do, well, then you want to start preparing for that now. You want to get your financial plan in order, understand how long your debt is going out. Are they credit cards with really high interest rates? And on the income side, on my income vehicles, bonds, CDs, savings accounts, giving me the interest that I need to make my retirement and financial goals.

10:57 Speaker A

Rob, thanks so much for taking the time here. We're going to be watching closely as we know that you will be too for when they do start to cut interest rates. Thanks so much.

11:12 Rob Conzo

Alright. Thank you.