Fed rate cut – What’s next for retail investors

AFTER four years, the long-awaited US Federal Reserve rate cut happened last month (September). It was the first rate cut since the Covid-19 pandemic, resulting in a 50-basis-point decline in the benchmark rate to a range of 4.75 to 5 per cent, from 5.25 to 5.5 per cent. More cuts are on the cards with the Fed’s benchmark rate expected to head south to about 3 per cent by the end of next year.

As Singapore interest rates typically follow US interest rates, we are shifting towards a lower interest rate environment. Even before the axe finally fell, retail investors here would have witnessed the impact of the impending rate cuts in the past few months. The writing was on the wall, reflected particularly in the falling yields of government securities such as Treasury bills (T-bills), Singapore Savings Bonds (SSBs), and fixed deposits.

Treasury bills

What a contrast it was to the euphoria seen in the last couple of years, when many investors gleefully poured their savings into tranches of the sure-win and risk-free T-bills when their yields climbed along with the US rate hikes back then. While savings accounts were at a measly 0.05 per cent per annum, T-bill yields hit a 30-year high of 4.4 per cent in December 2022 and have since largely hovered above the 3 per cent level.