Money Monday: The Impact Of Interest Rate Changes

Our Money Expert Paul Hood joins News On 6 to talk about what a possible change in interest rates could mean for Oklahomans.

Hood explains that interest rates signify the time value of money, influencing both investors and consumers. If rates fall, the stock market may rise, and consumer goods could become cheaper, allowing for higher-priced purchases like homes.

However, interest rates are currently in a middle ground, making long-term decisions challenging. He also noted that lower interest rates could lead to cheaper consumer products due to reduced borrowing costs for producers. The conversation highlighted the uncertainty surrounding whether to lock in rates or opt for variable ones and the speculative nature of home refinancing decisions.

Cooper: We've been talking about this for three years now, two years, but it looks like they may actually cut some interest rates. So what does this mean for the average person I know with me, I've been putting money in a high-yield savings account, which has kind of been good with these higher rates, right?

Hood: Yeah, so what people need to understand is interest just signifies the time value of money. And so if you're an investor, interest rates fall. The stock market typically rises because people take money out of the higher-interest things and then go into equities. If you're a consumer, you're a buyer, it makes things a little more, a little cheaper. So if you a house that you could pay, because we all base what we buy, typically, on the payments, and so if interest rates fall, you can buy a more expensive home. We're still in that middle ground right now. Interest rates wouldn't be considered low, and they're really not considered high, so they could go either way. Expectations are because it's an election year, there may be one or two more that they drop because, you know, one side wants the economy to look as good as it can naturally. So it's, it's, it's really, it's determined short-term decisions, not necessarily long-term decisions. So you really should continue the dollar cost averaging buying into equities if you're in the growth phase of life. But it does, you know you have to make decisions like, should I lock in a rate right now? Should I have a variable rate? Are interest rates going to go down? Are they going to go up? Should I buy a home now? So we're in that middle ground that it's kind of hard to make some decisions.

Cooper: Would this impact consumer prices at all, or is that totally separate?

Hood: So it's a little separate. There's a ripple effect, a delayed effect. In other words, producers of products that people buy can borrow money cheaper, therefore they potentially can sell their products cheaper. They can afford to drop the rates. Commercial loans can be refinanced, which makes the products potentially less expensive, because you know, businesses have a certain profit level, and if their costs are lower than they can pass that on the right way.

Cooper: You know, I know a lot of people that bought a house in the past two years, and they're trying to decide, do I refinance now? Do I wait a couple more times? And it's just kind of speculative, right?

Hood: It is, it is, you know, right now they're trending down, but we'll see.