what does this mean to you | Real Time Headlines

this United States Federal Reserve announced on wednesday that he was leaving interest rate constant.

However, there are recent signs that Economic Growth and cooling inflation The path is being paved for a widely expected September rate cut, which is good news for Americans struggling to keep up. Sky-high interest charges.

“Consumers should feel good about the U.S. economy,” said Brett House, an economics professor at Columbia Business School. “We continue to see inflation fall, growth slows, and price pressures continue to ease.”

inflation Price rises have been an ongoing issue since the Covid-19 pandemic, when they surged to their highest levels in more than 40 years. The Federal Reserve responded with a series of rate hikes, raising its benchmark rate to its highest level in decades.

Soaring interest rates have left most consumers borrowing costs The skyrocketing prices have put pressure on many families.

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Now, as the central bank meets again in September and lowers interest rates for the first time in years, consumers may find their borrowing costs also start to fall – and for some they have already.

The federal funds rate, set by the U.S. central bank, is the rate at which banks lend each other overnight. While that’s not the rate consumers will pay, the Fed’s move still Affects lending and savings rates They see it every day.

“The first rate cut won’t have a meaningful impact on people’s wallets, but it will be the beginning of a series of rate cuts towards the end of this year and into next year,” House said.

Some experts say that could push the Fed’s benchmark federal funds rate below 4% by the end of next year from the current range of 5.25% to 5.50%.

From credit card and mortgage rates to car loans and student debt, here’s what monthly interest payments will look like as we get closer to the initial rate cuts.

Since most credit card There are floating interest rates, which are directly tied to the Federal Reserve’s benchmark. After the interest rate hike cycle ends, the average credit card interest rate has risen from 16.34% in March 2022 to more than 20% currently, close to record high.

At the same time, credit card balances are shrinking as households struggle to cope with the high cost of living. higher and more cardholders Carrying debt every month or default on payments.

A recent report from the Philadelphia Federal Reserve showed data going back to 2012 shows credit card delinquency rates are at an all-time high. new highs.

For those paying 20% ​​or more in interest on a revolving balance, the annual interest rate will start to fall when the Fed cuts rates. But even then, they would only reduce extremely high levels and provide little relief, said Greg McBride, chief financial analyst at Bankrate.com.

“Interest rates are not going to come down fast enough to get you out of this hole,” McBride said.

best move Matt Schulz, chief credit analyst at LendingTree, suggests that the best approach for those with credit card debt is to take care of the problem themselves.

“They can do this by getting a 0% balance transfer credit card or a low-interest personal loan, or by calling the card issuer and asking for a lower interest rate on the card,” he said. “It’s more effective than you think.”

While 15-year and 30-year mortgage rates are fixed and primarily tied to Treasury yields and the economy, they are affected to some extent by Federal Reserve policy. Home loan rates have started to falllargely due to the prospect of a Fed-induced economic slowdown.

The average interest rate on a 30-year fixed-rate mortgage is currently just under 7%, according to Bankrate.

“If we continue to get good news on things like inflation, (mortgage rates) will likely continue to trend lower,” said Jacob Channel, senior economist at LendingTree. “We shouldn’t expect a sharp decline in the near term, but we “We could see interest rates fall back to 2024 lows in the coming weeks and months.”

“If all goes well, we might even end the year with an average interest rate on a 30-year fixed mortgage closer to 6 percent, rather than 6.5 or 7 percent.”

Channel added that at first glance this might not seem significant, but a nearly 50 basis point drop “when it comes to mortgage land” is “nothing to scoff at.”

car loan It is fixed. However, because new loans come with higher interest rates, and as interest rates rise, repayments have been increasing. car pricelead to Not very affordable Monthly payment.

The average interest rate on a five-year new car loan is currently just under 8%, according to Bankrate.

Here, however, “financing is a variable, and frankly it’s one of the smaller variables,” McBride said. For example, he calculated that for a five-year loan of $35,000, a quarter-percentage-point reduction in interest rate would be $4 per month.

Consumers will benefit more from improved credit scoresThat could pave the way for better loan terms, McBride said.

federal student loan interest rates It is also fixed, so most borrowers will not be immediately affected by the Fed’s measures. But undergraduate students applying for Direct Federal Student Loans in the 2023-24 academic year will pay an interest rate of 5.50%, up from 4.99% in 2022-23, and the interest rate on Federal Direct Undergraduate Loans in the 2024-2025 academic year will be 6.53%. highest rate in at least a decade.

Private student loans often have variable interest rates tied to the prime rate, Treasury bills, or other interest rate indexes, meaning these borrowers are already paying more in interest. However, exactly how much will vary depending on the benchmark.

Therefore, online returns are highest savings Bankrate’s McBride said interest rates on accounts have changed significantly and are now as high as 5.5%, well above the rate of inflation, a rare win for anyone building a cash buffer.

But he added that those rates would fall once the Fed lowers its benchmark. “If you’ve been thinking about certificate of deposit“Now is the time to lock it in,” McBride said. “These yields are not going to get better, so there’s no advantage in waiting.”

Currently, the highest-yield one-year CD has an interest rate of over 5.3%, which is as good as a high-yield savings account.

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