As we move deeper into 2024, the economic landscape is signaling changes that could significantly impact where investors place their money. With the Federal Reserve likely to adjust interest rates downward, it’s crucial for savvy investors to understand what this means not only for traditional options like Certificates of Deposit (CDs) but also for alternative investments, including mortgage funds, that might offer more attractive returns in a shifting market.
Understanding the Federal Reserve’s Role
The Federal Reserve’s monetary policy plays a pivotal role in shaping interest rate trends across various financial products. While CD rates are not directly pegged to the Federal Reserve’s benchmark rates, they are heavily influenced by them. As the Fed prepares to potentially lower rates starting as early as September 2024, following a noticeable cooling in inflation and employment data, we anticipate a downward trend in CD yields.
The CME Group’s FedWatch tool, a barometer for market expectations, suggests a 0.25% rate cut is almost certain in the coming months. Moreover, there is a median expectation of a total 0.75% reduction by the end of 2024, with further cuts potentially totaling 2 percentage points by September 2025. Such adjustments will likely cascade through the financial system, impacting everything from mortgage rates to CD yields.
The Outlook for CD Rates
For investors with shorter-term CDs (18 months or less), the anticipated rate cuts could mean a noticeable decline in yields. Currently, 1-year CDs offer returns in the 4.50%-5.00% range, but by the end of 2025, these could fall to between 2.50%-3.00%. On the other hand, longer-term CDs (two years or more), which generally track longer-term interest rate expectations, might see less dramatic declines. Although rates may drop, a 5-year CD yielding 4.00% today might only see a decrease to around 3.00%-3.50% by late 2025.
However, as the yield curve flattens, we could see a return to the historical norm where long-term CDs once again offer better returns than their short-term counterparts. This shift could influence the strategies of fixed-income investors who traditionally rely on CDs for stable returns.
Exploring Alternative Investments: Mortgage Funds
In this changing interest rate environment, it’s prudent for investors to explore alternative avenues that may offer more robust returns. One such option is mortgage funds, which have historically provided higher yields compared to traditional fixed-income products like CDs.
Mortgage funds, especially those focused on private money lending, offer a compelling alternative. These funds are less susceptible to the direct impacts of Federal Reserve rate cuts because they are often structured around real estate investments and short-term loans that are secured by property. For example, here at Pacific Private Money, our funds are designed to offer consistent returns, typically in the 7%-10% range, by leveraging the opportunities within the real estate market.
Investing in mortgage funds can be an attractive option for those looking to balance their portfolios with assets that have the potential to outperform traditional CDs in a low-rate environment. Moreover, the relatively short duration of loans within these funds can provide liquidity advantages while still delivering competitive returns.
To learn more about Pacific Private Money and the various alternative investment funds we offer, visit our webpage here: https://www.pacificprivatemoney.com/invest/
Final Thoughts
As the economic landscape evolves, so too should your investment strategy. While CDs may continue to play a role in a well-diversified portfolio, the expected decline in their yields warrants a closer look at alternative investments. Mortgage funds, with their potential for higher returns and relative insulation from rate fluctuations, present a viable option for those seeking to enhance their income in the face of anticipated interest rate cuts.
In uncertain times, diversification and a proactive approach to exploring alternative investments are key to maintaining and growing your wealth. At Pacific Private Money, we’re here to help you navigate these changes and find the best opportunities for your financial future.
If you’re interested in learning more about how mortgage funds can fit into your investment strategy, visit us at https://www.pacificprivatemoney.com/invest-now/ or give us a call at 415-926-4444. We’d be happy to assist with any questions you may have.