Fed Holds Interest Rates Steady – Actionable Items for Your Financial Plan

The Federal Reserve announced Wednesday that it will leave its benchmark interest rate unchanged at a range of 4.25% to 4.50%.

Jerome Powell has described his role as Chair of the Federal Reserve as focused on a dual mandate of maintaining maximum employment and stable prices.

In a Q&A session, Jerome Powell, Chairman of the Federal Reserve, reiterated that the central bank is not in a hurry to lower rates.

As Powell noted, the U.S. economy is still performing robustly, with the unemployment rate holding steady at 4.1%. At the same time, inflation, while elevated, is slowly making progress toward the Fed’s goal of 2%. As investors, consumers, and businesses all anticipate a potential rate cut in the future, it's essential to take proactive steps to adapt to the current economic environment.

Here are a few actionable items for investors and individuals preparing for a future where interest rates remain high or take time to decrease:

(1) Review Your Spending

For many individuals, particularly those in the "HENRY" group (High Earners Not Rich Yet), it’s easy to overlook how quickly spending can spiral out of control. Expensive houses, car payments, frequent vacations, dining out, and other lifestyle choices can quickly eat up even a high income. A quick reality check on your monthly expenses can uncover hidden money leaks.

Actionable Tip: Review your spending over the past three months. Identify areas where you could reduce or optimize expenses. It may be time to downsize a home or car that exceeds your needs or sell assets that are no longer adding value to your life. Redirecting these savings toward investments or paying down high-interest debt can set you up for long-term financial success. A clear budget helps you prioritize your financial goals.

(2) Review Your Debt

While the Federal Reserve's actions directly impact loan rates like mortgages, credit cards, and auto loans, it’s important to acknowledge that credit card interest rates remain high. As the Fed maintains higher rates, the cost of borrowing continues to rise, making it increasingly difficult to get ahead financially if you’re carrying significant debt.

Actionable Tip: Focus on aggressively paying down high-interest debt. Prioritize eliminating credit card balances, auto or student loans as quickly as possible. If you’re paying 20% or more in credit card interest, even small changes to your monthly payments can lead to massive savings over time. Getting out of debt gives you more flexibility and less financial stress in a higher-rate environment.

(3) Focus on Building a Bigger Emergency Fund

In a high-interest-rate environment, it’s crucial to have a safety net in case of unexpected expenses. Having a sufficient emergency fund can be especially helpful if your income is volatile or if you lose your job in a sudden economic downturn. It can also be helpful in the event of unexpected expenses to avoid using credit or selling investments.

Actionable Tip: Start by building or replenishing your emergency fund. A good goal is to save enough to cover one year of expenses - or more if your income fluctuates. If your income is stable, aim for at least six months. This cushion allows you to weather short-term challenges without the need to rack up more debt or dip into your investments.

(4) Save More for Big Purchases

Even though inflation may gradually fall towards the Fed’s 2% target, the reality is that prices for big-ticket items like homes, cars, healthcare and education will still rise over time. The current high rates may make financing these purchases more expensive in the near future, which means it’s essential to start saving for them now rather than relying on credit.

Actionable Tip: For large purchases (such as a home, car, or school), begin saving earlier. Consider setting up separate savings accounts or using specific tools like a high-yield savings account or short-term investment funds to earn interest on your savings. This approach reduces the need for high-interest or jumbo mortgages and helps you build wealth without incurring excessive debt.

(5) Build New Skills to Stay Marketable

Even though the economy is strong overall, some job markets are becoming more competitive, and certain industries may be impacted by the cost of borrowing. For instance, sectors reliant on growth investments or expansion (such as tech startups) may face headwinds with higher rates, while other fields may see increased demand. Many people focus on cutting expenses when it may be easier (and more rewarding) to increase your earning potential.

Actionable Tip: Focus on developing transferable skills that will make you more marketable. Digital literacy is essential across industries—whether it’s coding, data analytics, or learning how to use new productivity tools. Additionally, soft skills like leadership, communication, and emotional intelligence (EQ) are highly valued. There are numerous online platforms like Coursera, LinkedIn Learning, and Skillshare that offer courses in a variety of subjects, from technical training to leadership development.

(6) Review Your Investment Strategy

For the past several years, many investors have enjoyed a seemingly unstoppable bull market, where stock prices have been rising. However, we’ve recently seen how quickly things can shift. The economic landscape can change quickly and and yesterday’s winners may become tomorrow’s underperformers.

Actionable Tip: Now is the time to assess your investment strategy. Review your financial goals, time horizon, and risk tolerance—are your current investments still aligned with them? If your portfolio has drifted from your original targets due to market fluctuations, it may be time to rebalance. This process ensures that your asset allocation matches your objectives and risk profile, helping you stay on track regardless of market conditions. Rebalancing also offers an opportunity to invest in areas that better align with today’s economic environment.

Final Thoughts

While the Federal Reserve's decision to hold interest rates steady may bring some relief to markets, it’s important to recognize that rates may not decrease soon. By taking proactive steps—such as reviewing spending, paying down debt, building an emergency fund, saving for big purchases, upskilling, adjusting investment strategies, and staying flexible in the job market—you can ensure financial security and remain adaptable in the face of changing economic conditions.