recent indications inflation The loose policy is United States Federal Reserve start lower interest rates Just this fall.
this consumer price indexThe U.S. Labor Department reported last week that an important indicator of inflation fell in June for the first time in more than four years.
McBride said: “Given the numerous signs of a cooling economy, June’s consumer price index certainly constitutes what Fed Chairman Powell said is ‘better inflation data,’ and we need to start cutting interest rates before the Fed Saw this before.
With a rate cut now looking more likely, households may finally get some relief from sky-high borrowing costs following a recent series of rate hikes that took the Fed’s benchmark rate to its highest level in decades.
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Fed officials said they Expected to lower benchmark interest rates Once in 2024 and four more times in 2025.
The federal funds rate is set by the U.S. central bank and is the rate at which banks lend money to each other overnight. While that’s not the rate consumers pay, the Fed’s actions still impact the rates they see every day on things like private student loans and credit cards.
“If you’re a consumer, now is the time to say, what do my expenses look like? Where is my money growing the most, and what are my options?” said attorney specializing in debt relief at Tyne Law Firm in New York and author of Life said Leslie Tyne, author of “With Debt.”
Here are three key strategies to consider:
1. Watch your floating rate debt
As interest rates are cut, the prime rate is also reduced, as is the interest rate on variable rate debt – e.g. credit cardadjustable-rate mortgages and some private student loans – may come along, reducing your monthly payments.
For example, credit card holders may see their annual percentage rate (APR) drop within one or two billing cycles. But even then, annual interest rates will only fall back to extremely high levels.
instead of waiting To accommodate minor adjustments in the coming months, borrowers can now switch to a zero-interest balance transfer credit card or consolidate and pay off higher-interest credit cards personal loanTyne said.
Olga Lorenko | Moment | Getty Images
Many homeowners own ARMs that are indexed to various indexes, such as Prime Rate, Libor, or 11th Regional funding costs are likely to see interest rates fall as well – although not immediately, as ARMs typically reset annually.
At the same time, there are fewer options to give homeowners extra breathing room. “Your better move might be to wait to refinance,” McBride said.
Private student loans also tend to have variable interest rates that are tied to the prime rate, Treasury bills, or other interest rate indexes, meaning that once the Fed starts cutting interest rates, the interest rates on these private student loans will start to fall.
Eventually, borrowers with variable-rate private student loans may also be able to refinance into cheaper fixed-rate loans, said higher education expert Mark Kantrowitz.
Fixed rates for private refinances currently range from as low as 5% to as high as 11%, Kantrowitz said.
2. Lock in your savings rate
While borrowing costs will fall, lower interest rates will hurt savers.
Since online savings accounts, money market accounts, and certificate of deposit While everything is poised to fall, experts say now is the time to lock in some of the highest returns in decades.
Currently, interest rates on the highest-yielding online savings accounts and one-year time deposits exceed 5%, well above the rate of inflation.
The opportunity to earn 5% per year on these cash investments may not last long.
Howard Hooker
Wealth Advisors at EKS Associates
“One thing you might want to do is consider investing the spare cash you have into higher-yielding money market funds,” said Howard Hook, CFP, senior wealth advisor at EKS Associates in Princeton, N.J. ) express.
“Money market brokerage accounts typically pay higher interest rates than money market or bank savings accounts,” he said in an emailed statement. “If the Fed does want to cut interest rates five times over the next 18 months (as currently forecast) , then the opportunity to earn 5% per year on these cash investments may not last long.”
3. Postpone large purchases
If you’re planning on making a major purchase, such as a home or car, it may be worth waiting because lower interest rates can lower future financing costs.
“Timing your purchase to coincide with lower interest rates can save you money over the life of your loan,” Tyne said.
Although mortgage rates are fixed and closely related to Treasury yields and economy, they have begun to retreat from their recent highs, largely due to the prospect of a Fed-induced economic slowdown. The average interest rate on a 30-year fixed-rate mortgage is currently just above 7%, according to Bankrate.
However, McBride said lower mortgage rates could also stimulate demand for home purchases and drive up home prices. “If lower mortgage rates cause prices to spike, this will offset the affordability advantage for potential buyers.”
to that moment car loanThere’s no doubt that inflation has hit finance costs and car prices hard. The average interest rate on a five-year new car loan is currently close to 8%, according to Bankrate.
But in this case, “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.
In this case, and in many others, Consumers will benefit more from improved credit scoresThat could pave the way for better loan terms, McBride said.
