HOW TO TAKE ADVANTAGE OF THE FED'S BIG RATE CUT

THE WAIT IS OVER. After more than a year of will-they-or-won't-they, the Federal Reserve on Sept. 18 announced the first cut to its benchmark Federal funds rate since the early days of the COVID-19 pandemic, a 50-basis-point drop that Chairman Jerome Powell signaled is likely the first of many.

- ALICIA ADAMCZYK

With inflation at its lowest level since early 2021, an uptick in the unemployment rate, and growing worries about softening consumer spending, the cut was anything but a surprise. But it does signal the start of a pivot in how the average investor should position her portfolio, as wealth planners and other experts tell Fortune.

For starters, investors should expect short-term volatility, especially if the Fed embarks on a sequence of rate changes, says Chester Spatt, finance professor at Carnegie Mellon's Tepper School of Business. That will be doubly so considering that the timing of the first cut coincides with the home stretch of a presidential race, when investors tend to overreact to political plot twists. "These periods where the direction of rates is changing tend to be periods of uncertainty," says Spatt.

Driving that uncertainty, of course, is the question that's been ricocheting around investors' minds for months: Has the Fed nailed a "soft landing," slowing inflation without causing a recession? Or is September's rate cut a sign that higher interest rates have gone too far and made the economy too weak?

The bad news is that in recent years, declining interest rates and recessions have often gone hand in hand as the Fed tries to backstop Wall Street and Main Street: Seven out of 11 periods of sustained rate cutting since 1980 have coincided with recessions, according to research by Hartford Funds.