How are Rate Cuts Impacting U.S. Customer Sentiment?

By Nicole Penn

Some thoughts on a post-rate cut playbook for brands…

The bigger-than-expected cut in interest rates by the United States Federal Reserve may have sent the stock market into some celebrations, but its impact on the economy, consumers, and the family wallet remain to be seen. The effects of rate cuts on consumer spending typically manifest over a 6-to-12-month horizon, resulting in slightly more job creation, economic growth, and a marginal increase in inflation.

Interest rate cuts of the past

A feature in Visual Capitalist consider interest rate cycles to be an “economic balancing act,” noting that—historically—most have been quick and steep, particularly in the 1970s and 1980s.

What then, do the interest rate cuts of 2024 have in store, and what are consumer expectations?

Most sectors are already having a mixed experience

Some are seeing gains. The mortgage industry, for example, is experiencing a major increase in demand, with predictions that housing may see a rebound in the spring of 2025.?

• 42% of those in the market to buy a home would be more likely to purchase following interest rate cuts, with this percentage jumping to 68% among first-time homebuyers.

With this comes a general increase in optimism connected with lower interest rates across construction, home improvement, and automotive.

However, retail consumers are still more cautious than they were at the same time last year in most other categories.

Inflation Concerns

While inflation has cooled slightly, its lingering effects still impact consumer purchasing decisions.?

• 42% of U.S. consumers reported increasing their spending over the past six months, but nearly two-thirds attributed this to higher prices rather than a desire to consume more.

Sentiment around major purchases changes by demographic

CivicScience data shows that following rate cuts, consumers are likely to prioritize major purchases, especially those under 35 years old.

As reported in The Conference Board, older consumers (ages 35 to 54) were less confident, while those under the age of 35 were more confident when it came to making a major purchase. Reinforcing these findings are statistics from CivicScience, where most younger adults will make major purchases, increase contributions to retirement savings, and apply for new credit.

At EGC, we are seeing several key trends in consumer behavior:

• Selective Spending: Consumers are being more discerning about their purchases, focusing on essential items and seeking value.
• Luxury Market Resilience: High-end retailers are showing surprising strength, with luxury goods maintaining steady demand.
• Promotions Win: There’s a trend towards increased promotional offers to attract price-conscious consumers. In our experience, strong promotional discounts and financing offers are outpacing any other CTA (bundles, free gifts) by almost over 15 % YOY.?

In short, consumers are cautiously optimistic and selective, yet can be wooed by the right mix of value and offer.

This can present both challenges and opportunities for companies.

Marketing Playbook for the Post-Rate Cut Era

Given these insights, we can identify key elements of a post-rate cut marketing playbook.

1. Segment-specific targeting

• Different consumer segments, especially age groups, will respond differently to rate cuts. Tailor your marketing messages accordingly.

2. Value-driven messaging

• Emphasize the value proposition and highlight the needs more than the wants.?
• Consider smart pricing strategies that highlight the benefits customers receive for their money.
• Develop campaigns that showcase how your offerings meet specific consumer needs beyond just price considerations.

3. Long-term relationship building

Remember that the full impact of rate cuts on consumer spending may take months to materialize and some consumers have “election freeze”:

• Focus on building brand loyalty and trust through consistent, value-driven messaging.
• Develop content marketing strategies that educate consumers about making smart financial decisions in the new economic environment.
• Implement loyalty programs that incentivize repeat purchases and long-term customer relationships.

By adapting your marketing strategies to align with these post-rate cuts in consumer trends, you can position your brand for success in the evolving economic landscape. Remember to continuously monitor consumer sentiment and spending patterns, adjusting your approach as needed to stay ahead of the curve.