Add thelocalreport.in As A Trusted Source
federal Reserve It cut its benchmark interest rate by a quarter point on Wednesday for the second time since September. Earlier, there was no cut in it for nine months.
The federal funds rate is the rate at which banks borrow and lend to each other. Although the rates consumers pay to borrow money are not directly tied to this rate, changes affect what you pay for credit cards, auto loans, mortgages and other financial products.
“Although the full economic impact of such a move will emerge over time, early indicators suggest that even modest rate cuts could have meaningful consequences on consumer behavior and financial health,” said Michele Ranieri, vice president and head of U.S. research at credit reporting agency TransUnion.
When the Fed sets rates it has two goals: one, to manage prices for goods and services, and two, to encourage full employment. Typically, the Fed may raise rates to try to reduce inflation and may lower it to encourage faster economic growth and increase hiring. The challenge now is that inflation is above the Fed’s 2% target but the job market is weak. The government shutdown has also halted the collection and release of data the Fed relies on to monitor the health of the economy.
Still, the Fed has estimated it will cut rates one more time before the end of the year.
Know here what it is:
Interest on savings accounts will not be as attractive
For savers, falling interest rates will gradually erode the attractive yields currently offered with certificates of deposit (CDs) and high-yield savings accounts.
Three According to Ken Tumin, founder of DepositAccounts.com, the top five high-yield savings accounts had rate cuts following the last Fed rate cut in September, while two of the Big Five banks (Ally and Discover/Capital One) cut their savings account rates. Top rates for high yield savings accounts remain at around 4.46% to 4.6% for now.
They are still better than the trends of recent years, and are a good option for consumers who want to earn returns on money received in the near term. A high yield savings account typically has a much higher annual percentage yield than a traditional savings account. According to Bankrate, the national average for traditional savings accounts is currently 0.63%.
According to Tumin, there may be some accounts with returns around 4% by the end of 2025, but Fed cuts will filter out these offerings, driving down average yields.
Cuts will gradually impact mortgages
For potential home buyers, the market has already priced in the rate cut.
“Mortgage rates, in particular, have responded sharply,” Raneri said. “Just this past week, they fell to their lowest level in more than a year. While mortgage rates do not always move in sync with the Fed’s target rate – often pricing in anticipated future cuts, continued easing of monetary policy could push rates even lower.”
Bankrate financial analyst Stephen Cates said the declining interest rate environment will provide some relief to borrowers over time.
“Whether it’s a homeowner with a 7% mortgage or a recent graduate hoping to refinance student loans and credit card debt, lower rates can ease the burden on many indebted households by opening up opportunities to refinance or consolidate,” he said.
Auto loan is not expected to decline soon
Americans Auto loan rates have suffered a steep decline over the past three years after the Fed raised its benchmark interest rate as early as 2022. These are not expected to decline any time soon. Analysts say that although the cuts will eventually provide relief, the relief may be delayed.
“If the auto market starts to cool and people aren’t buying cars, we could see lending margins start to come down, but auto loan rates don’t move in lockstep with the Fed rate,” Cates said.
New car prices remain at historically high levels, not adjusting for inflation.
Typically, the annual percentage rate for auto loans can run from around 4% to 30%. Bankrate’s most recent weekly survey found that average auto loan interest rates on a 60-month new car loan are currently 7.10%.
Credit card rate relief may be slow
Interest rates for credit cards currently average 20.01%, and the Fed’s rate cuts may be slow to be felt by anyone carrying large amounts of credit card debt. Any reduction is positive news, he said.
“While inflation is putting pressure on household budgets, rate cuts provide a potential counterbalance by reducing debt service costs,” Raneri said.
Still, the best thing for anyone carrying a large credit card balance is to prioritize paying off high-interest rate debt, and transfer any possible amounts to a lower APR card or negotiate directly with credit card companies for accommodations.
,
The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab & Co. Inc. AP is fully responsible for its journalism.