How do the fed rate cuts affect you?

The Fed always meets on Tuesdays. Why did they have this out-of-the-ordinary Sunday meeting?

Bear Stearns was a tough situation. The Fed did not want Bear to fail, which would have created a lot more panic. Bear Stearns was pushed to sell and given a very short window of time to do so. When JPMorgan reached and agreement with Bear at such a low amount, this caused this Fed to worry about how investors would react on Monday. The Fed needed to offset this news so they cut rates slightly on Sunday and again on Tuesday.

  • The Fed is trying to maintain calm
  • Rate cut gives confidence to investors

It seems like the stock market has been sporadic lately. Is this typical?

The market has been very volatile. In the past nine months, there have been 25 days where it has moved either up or down more the 2%. To give some perspective, in 2004 and 2005, this happened 0 days. And in the first half on 2007, there were 2 days when the market moved more than 2%.

  • Market is abnormally volatile
  • 25 days of 2% stock market movement in the past nine months

So are we in a recession? We have talked about it before. What should we do with all the news we are hearing?

We keep hearing about how bad everything is right now. Consumer spending is down, the housing market is down, 63,000 jobs were cut in February. We tell people "Don't admire the problem". Be prepared for it. We are bombarded with news about the declining economy. We should take this opportunity to look at our financial situation and determine if we are prepared to weather the storm. Now is the time to watch your spending and forgo that luxury item that might be a stretch for you. Try to have three to six months worth of your living expenses in accessible cash. It is also important to remember that a recession is a natural ebb and flow in our economy. We have been through four recessions in the past 30 years and they have all turned around.

  • Do not admire the problem, prepare yourself
  • Aim to have 3-6 months of accessible cash
  • Recessions are a natural occurrence and will turn around

How long do these situations usually last?

Most recessions are over in roughly six months. It is rare for a recession to last for a year.

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