Episode Transcript:  

  There's a lot of buzz right now about, rather or not, the Fed is finally gonna cut rates, and if they are, is it gonna be 25 basis points, 50 basis points or more? But here's the million dollar question. Will it really matter if they cut them at all to you? To me, to the economy, yes and no. Let's unpack it.

Let's get REady2Scale.

Hey guys, my name is Jeanette Friedrich. I'm the director of investor Relations here at Blue Lake Capital, where we specialize in multifamily investments across the us. So let's get into this. First of all, what does the Fed actually control? So when we're talking about the Fed's cutting rates, what we're talking about is essentially them adjusting the federal funds rate, which is very simply the overnight lending rate between banks.

It doesn't have anything to do with mortgages or even with small business loans. So it's important to understand that mortgages are actually tied to the 10 year treasury and people's outlook on inflation. So even if the Fed cuts rates by 50 basis points, that does not mean that you're suddenly gonna see mortgage rates also drop by 50 basis points.

That's not gonna happen. In addition to that, what what you will see though, is you will see things like credit cards or HELOCs, or even auto loans. Start to show a little bit of that decrease, but again, it's not gonna be in the exact same 50 to 50, 25 to 25 type of scenario. So what rates, cuts really do signal is more of a directional shift, not a direct discount.

And that's something that's really important for people to understand as. Especially because it's getting so much buzz. So what really matters about this and how effective a potential cut is going to be is really based on timing and believe it or not, market perception. So if the market is perceiving this as a proactive move where the Fed is getting ahead of a problem before a downturn, then a cut can actually really bolster the economy and make a big difference.

But if people are viewing the cut as reactive, hence indicating maybe there's some type of problem that the Fed is concerned about, it can actually spook markets. So it's important to understand that as well as the fact that the reality is, most of the time market expectations have already guessed which way it's going to go.

Well before the Fed actually does anything. So what I'm talking about is Wall Street. Wall Street has very likely already baked in the expectations of these cuts into their projections long ago. So even if the Fed does come out and suddenly cut rates by 50 basis points, don't expect to see the yield on any of your investments in the stock market.

Suddenly change or shift. They were already anticipated and banking on it to begin with. The other thing that's important to understand too is that there's definitely gonna be a lag. So you need to think in terms of months, not days before. Even the areas that it does potentially impact are even going to show it.

So will it matter? Yes and no. Yes, because it's going to help lower the, the cost of short term borrowing, so that is definitely helpful. It can also potentially take a lot of pressure off of businesses and even households that are using variable rate loans. And last but not least, it could potentially help to really bolster a rally in the market and further strengthen the economy.

But maybe it's not really gonna matter much at all, because the reality, as I said, is that. Mortgage rates actually follow the treasury yields, not Jerome, Powell's pin. And so you're really not gonna see any type of revival in the housing market all of a sudden overnight, or even several months down the road, even if the fed cuts rates.

So don't expect that. Second of all, if inflation is still sticky, which a lot of people feel that it is, it actually has a risk of possibly reigniting inflation and actually making things even worse. And last but not least, unfortunately, if you happen to be one of those saving type of people, think CDs or money market accounts or even um, high yield savings accounts, those rates are actually gonna go down.

So here's the bottom line. Our 25 basis points are 50 basis points really going to make a big difference in your life or mine. No, it's really more about signaling than it is about substance. What is important to understand is that when the fed cuts rates, you don't wanna just be asking are they gonna cut rates?

You wanna be asking why are they cutting rates? And most importantly, how does the market feel about it? Because that's where the real insights are gonna lie. So if you know someone that's been trying to kind of figure this all out, feel free to share this video with them or this podcast episode with them.

And in the meantime, I hope you guys found this helpful. I will see you on the next episode.

Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multifamily investment opportunities that we can find and invite investors to join in with us. We target class B value add multifamily properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal.

This means our interests are aligned with yours. If you're an accredited investor looking to expand your portfolio and diversify sponsors, be sure to visit us@bluelakecapital.com. Blue Lake Capital, be bold, be extraordinary, and keep moving forward.