The Informed Investor: Where Are Interest Rates Headed?

Interest rates tend to have an impact on everyday life, from savings rates and student loans to credit cards, mortgages, and more. For investors, rate cuts (and hikes) by the US Federal Reserve often prompt the question: How do different interest rate environments affect my portfolio? The Federal Open Market Committee (FOMC) cut interest rates on September 18, 2024, the first of three cuts since the hikes began in 2022 to control rising inflation. Today, headlines about the possibility of more interest rate cuts are in the news. As the Fed often signals its agenda in advance, it’s likely that market participants are already incorporating this information into market prices. Research also shows that not all interest rates move together or in the same direction—and that it’s virtually impossible to accurately predict where rates are headed. This means that the Fed might do one thing while interest rates on Treasuries do another. In Episode 5 of “The Informed Investor,” Dimensional’s Mark Gochnour, Wes Crill, and Jake DeKinder examine the impact of interest rate changes and assess how those outcomes can help investors prepare for future moves in interest rates.Sources: Federal Reserve Bank of St. Louis; Wes Crill, “Don’t Get Fed Up, Part 2,” Insights (blog), Dimensional Fund Advisors, August 2, 2004.