Expectations ahead of Fed’s first rate cut in years | Real Time Headlines

recent signs cooling inflation The path is being paved for a rate cut when the Fed meets next week, which is good news for Americans struggling with the rising cost of living. Sky-high interest charges.

“Consumers should be happy with (the rate cut), but it won’t bring a lot of immediate relief,” said Brett House, an economics professor at Columbia Business School.

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 central bank responded with a series of rate hikes, taking 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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Fed Chairman Greg McBride said: “Cumulative progress on inflation, with the Consumer Price Index (CPI) now at 2.5% after peaking at 9% in mid-2022, is the latest increase in inflation. The meeting will give the green light to start cutting interest rates at next week’s meeting. consumer price indexa broad measure of the cost of goods and services across the U.S. economy.

However, the impact of the first rate cut, expected to be a quarter of a percentage point, will be “very small,” McBride said.

“Borrowers can be optimistic that we will see a series of rate cuts that cumulatively will have a meaningful impact on borrowing costs, but it will take time,” he said. “One rate cut is not a panacea.”

Markets are pricing in a 100% chance that the Fed will begin cutting interest rates at its Sept. 17-18 meeting, with the possibility of more aggressive moves later this year, according to CME Group’s FedWatch Indicator.

Some experts say that could push the Fed’s benchmark federal funds rate below 4% by the end of 2025, from the current range of 5.25% to 5.50%.

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.

Once the Fed starts lowering its benchmark, rates on everything from credit cards to car loans to mortgages will be affected. Here’s a detailed description of what to expect:

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.

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 to extremely high levels, McBride said.

“The Fed would have to cut rates significantly to get to 19%, which is still well above where it was three years ago,” McBride said.

best move He said the best approach for those with credit card debt is to switch to a 0% balance transfer credit card and aggressively pay off the balance. “Interest rates are not going to fall fast enough to save you.”

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 was about 6.3% as of Sept. 11, down nearly a percentage point from May rates, according to the Mortgage Bankers Association.

But LendingTree senior economist Jacob Channel said that even though mortgage rates are falling, home prices in many areas are still at or near historic highs.

“This rate cut will not completely reshape the economy or make things like buying a home or paying off debt any easier,” he said.

Although someone plans Financing a new car Bankrate’s McBride said that while the Fed’s next steps won’t have any material impact on your earnings, you may benefit from future rate cuts. “No one is going to upgrade from a compact car to an SUV for a quarter of the price.” A quarter-percentage point difference on a $35,000 loan is about $4 a month, he said.

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

federal student loan interest rates Interest rates are also fixed, so most borrowers won’t be immediately affected by a rate cut. However, if you have private loans, they may be fixed-rate or variable-rate tied to Treasury bills or other rates, which means that once the Fed starts cutting interest rates, the interest rates on those private student loans will drop dramatically.

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.

However, he said that refinancing federal loans into private student loans would give up the safety nets that come with federal loans, “such as deferment, forbearance, income-driven repayment, and loan forgiveness and discharge options.” Additionally, extending the loan term means As a result, you will end up paying more interest on your balance.

As the Federal Reserve has raised interest rates a series of times in recent years, high-yield bonds have savings Bankrate’s McBride said account interest rates have changed significantly and are now well over 5%, with no minimum deposit required.

He said that as interest rate cuts approach, “deposit rates will fall.” “But what matters is what your returns are relative to inflation – and that’s good news. As long as you put your money in the right places, you can still get returns that are ahead of inflation.”

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