Vault Logo
PersonalBusiness
Personal
Business
PersonalBusiness
What We Offer
Financial Planning
Personalized financial planning & ongoing support
Investment Opportunities
Diversified investment offerings across a 
range of asset classes
SmartCash
Interest-earning cash accounts for USD, 
EUR & GBP up to 4.70% APY
SmartCash Business
Business owners can earn up to 4.70% APY on business saving accounts
Passive Monthly Income
Steady stream of monthly cash flow on your investments
financial advisor abu dhabi
FeesResourcesAbout Us
Log In
Talk to Us
Explore the App

Interest Rates Going Down & What It Means for Investors

Published on
July 5, 2024
|
3 MIN
Share
Image by Eva Mauermann
Image by
Eva Mauermann

In March 2022, the Central Bank of the US (the Federal Reserve or the Fed) started raising overnight interest rates from near 0 to 5%+ in less than a year and a half, in an unprecedented move to battle the high inflation and inflation expectations.

‍

Source: https://fred.stlouisfed.org/

‍

Suddenly, wealth holders sitting on idle cash that yielded little return started making 5% returns on the same. This has had a strong impact on any investment market, whether real estate, bonds, or equities. Essentially, everything else became less attractive in a higher interest rate environment vis a vis cash, in addition to lending rates, such as mortgage rates increasing above rental yields. 

‍

As you can see from the chart and as we have discussed before, the rate hike regime has perhaps been declared as finished, and now a new one is dawning. 

‍

The economics behind the interest rate hike

‍

The Fed needs to balance two critical essential elements:

‍

  1. Keeping a steady inflation somewhere around 2%
    ‍
  2. Maintaining a healthy economy: keeping unemployment down

‍

So let’s start with some key factors of why the Fed increased interest rates so dramatically to begin with and what are the data points showing that this policy will now reverse over the coming year(s).

‍

Inflation

‍

The spike of inflation and the fear of further inflationary forces drove the hike in interest rates over that period. The chart below shows the preceding spike and then the eventual cooling and inflation stabilization. With the inflation rate now normalized and inflation expectations as well normalized, this battle can be declared won:

‍

Source: https://fred.stlouisfed.org/

‍

However, why would that lead to the Fed changing course rather than keeping things the way they are now?

‍

That brings us to their second motivation, which is to make sure they maintain a healthy US economy.

‍

Unemployment and Economic Growth

‍

For the past few years, many talks have been about recession risk considering the spike in interest rates. Raising interest rates so aggressively usually would lead to an economic slowdown, which has yet to be the case. To make these decisions, the Fed looks at multiple data sources; however, a very important one is job openings in the US.

‍

Source: https://fred.stlouisfed.org/

‍

As you can see, there is now a downward trend in job openings, and multiple other data sources show a similar story of a cooling economy. 

‍

This has led to the belief that the Fed will soon change policy. 

‍

Interest Rate Predictions

‍

Global capital holders and investors have predicted with their own capital that over the next year, interest rates will go down at least a full percentage point from where they are today, considering the trends being observed. However, what does that mean to wealth holders?

‍

A few things:

‍

1—If you are holding cash and benefiting from the high interest rate environment, most likely, you are to benefit less from the return you are earning. 

‍

2—If you are holding bonds (or Sukuk), you most likely got disadvantaged in your portfolio as interest rates shot up. However, these fixed-income instruments would become more attractive in a world where cash is yielding less return. 

‍

3—If you are holding equities, note that the companies you own, you are likely to pay less interest on their debt capital, and your future stream of earnings also becomes more attractive in a lesser interest rate environment.

‍

This really means that when interest rates go down, mostly everything else that has future earnings (bonds, real estate, and equities) becomes more attractive due to cash being less attractive and lending rates going down.

‍

Those who wait for interest rates to go down before investing in other asset classes will realize that by then, the investment market will have already gone up as investors take action before the event happens to take advantage of being the first to take action. 

‍

Summary

‍

Interest rates are comparatively very high at the moment, which is very attractive for anyone holding cash and taking advantage of the environment. However, that is most likely not due to last; therefore, the best investors align their portfolios with their long-term objectives. Rarely do you see affluent and wealthy individuals plan on consuming most of their wealth in the short term. Wealth is most often held for long-term goals such as securing financial independence or enjoying a retirement income stream for very long periods of time. Therefore, our view is to align your portfolio with these objectives and have the majority of your wealth in owning as much future diversified earnings as possible through investing in diversified equities or to fix your lending return over a longer duration through bonds (or Sukuk) to have more certainty over your longer-term returns. 

Read Next
Grayscale Photo of Cargo Ship on Port
Navigating Geopolitical Shifts: Protecting Your Wealth Through Uncertainty
4:30 Min
Apr 7, 2025
An image of the night sky with stars
Nvidia Stocks Sink $600B, Now What? - AI Disruption in the Market
2 MIN
Jan 28, 2025
The US flag
US is Red, Now What? | Vault Wealth
2 MIN
Nov 6, 2024
Request to Join
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Talk to Us

We'll use your information to get in touch and occasionally send updates.
No spam, ever. Unsubscribe anytime.

Thank you for your interest in joining Vault.

As part of our commitment to providing personalized guidance, one of our advisors will be in touch to understand your current financial situation, discuss how Vault can add value, and help you sign up to our digital platform. In the meantime, feel free to explore our educational resources.
Explore Resources
Oops! Something went wrong while submitting the form.
What We Offer
Financial PlanningInvestment OpportunitiesSmartCashSmartCash BusinessPassive Monthly Income
Other
FeesResourcesAbout UsLog InGet Started
Registered Office
Office 108, 14th Floor
Al Khatem Tower, ADGM
Abu Dhabi, United Arab Emirates
+971 56 209 0006support@vaultwealth.com
Vault Wealth Limited is a company incorporated in the Abu Dhabi Global Market ("ADGM") and is regulated by the Financial Services Regulatory Authority (FSRA) with a category 4 license for advising on investments and credit, and arranging deals with retail endorsement. Our registered office is at Office 108, 14th Floor, Al Khatem Tower, ADGM, Abu Dhabi, UAE.
This website and its content are intended for informational purposes only and do not constitute investment advice or an offer to buy or sell any financial products. The information provided is for general purposes and should not be relied upon for making investment decisions. Any past performance figures are not indicative of future results and should not be considered as a guarantee of future returns.
Vault Wealth Limited adheres to the Global Investment Performance Standards (GIPS) when presenting information relating to past performance. However, the GIPS standards do not guarantee the accuracy or completeness of the information presented, and we make no representation or warranty, express or implied, regarding the fairness, accuracy, or completeness of the information provided. By using this website, you acknowledge and agree that you have read, understood, and accept the terms of this disclaimer.
Interactive Brokers LLC is a registered Broker-Dealer, Futures Commission Merchant and Forex Dealer Member, regulated by the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), and is a member of the Financial Industry Regulatory Authority (FINRA) and several other self-regulatory organizations. Interactive Brokers does not endorse or recommend any introducing brokers, third-party financial advisors or hedge funds. Interactive Brokers provides execution and clearing services to customers. None of the information contained herein constitutes a recommendation, offer, or solicitation of an offer by Interactive Brokers to buy, sell or hold any security, financial product or instrument or to engage in any specific investment strategy. Interactive Brokers makes no representation, and assumes no liability to the accuracy or completeness of the information provided on this website.
For more information regarding Interactive Brokers, please visit www.interactivebrokers.com.
© 2025 Vault
© 2024 Vault
Terms of Use
© 2024 Vault
Privacy Policy
© 2024 Vault
Sitemap
Download the mobile app