Federal Reserve Building in Washington, DC
Joshua Roberts | Reuters
this Fed Announcing a reduction in benchmark interest rates one quarter pointor 25 basis points, a few days later President-elect Trump won 2024 elections.
Economic uncertainty is the prevailing mood entering the new century election day After a long period of high-level operation inflation This has made it difficult for many Americans to afford living expenses.
But recent economic data suggests inflation is falling back toward the Fed’s 2% target, paving the way for the central bank to cut interest rates this fall. Thursday’s interest rate cut follows Half a point Reduce holdings on September 18.
The federal funds rate determines overnight borrowing costs for banks, but also affects borrowing costs for consumers.
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The personal consumption expenditures price index, the Fed’s preferred inflation gauge, showed only an increase since the Fed’s last meeting. Annual increase of 2.1%.
Although the central bank operates independently of the White House, Trump has lobbying Ask the Fed to lower interest rates.
For consumers struggling with high levels of stress borrowing costs The move comes after 11 consecutive interest rate hikes between March 2022 and July 2023 – although it may be some time before lower rates have a noticeable impact on household budgets.
“The Fed will raise interest rates from the floor rate to 53RD One floor of the skyscraper, now they are at number 47th A lower bound and another rate cut would take us to 45th “Our view is not that different,” said Greg McBride, chief financial analyst at Bankrate.com.
From credit card and mortgage rates to car loans and savings accounts, here’s how the Fed’s rate cuts will start to impact your finances in the coming months.
credit card
Since most credit card There are floating interest rates, which are directly tied to the Federal Reserve’s benchmark. Due to the impact of the central bank’s interest rate hike cycle, the average interest rate on credit cards has risen from 16.34% in March 2022 to more than 20% today – close to record high.
With the Federal Reserve cutting interest rates for the first time, annual interest rates have begun to fall, but not a lot.
“Still, these rates are still high,” said LendingTree credit analyst Matt Schulz. “While they will almost certainly continue to decline in the coming months, no one should expect a significant reduction in credit card bills anytime soon.”
instead of waiting Regarding the small annual interest rate adjustment in the coming months, best move He says the best approach for those with credit card debt is to shop around for a better rate, ask your card issuer for a lower rate on your current credit card, or take advantage of a 0% balance transfer offer.
“Another rate cut doesn’t change the fact that the best thing people can do to get rates lower is to take matters into their own hands.”
Trump proposed during the campaign Limit credit card interest rates 10%, but such measures must also win congressional approval and withstand challenges from the banking industry.
car loan
Although car loan is fixed and higher vehicle price Jessica Caldwell, director of insights at Edmonds, said high borrowing costs have become “increasingly difficult to manage.”
“President Trump’s promise of fiscal relief amid a strained economy clearly resonates with voters across the country,” she said.
Edmonds said the average interest rate on a five-year new car loan is now about 7%, up from 4% when the Fed started raising rates. However, the Fed’s rate cut will go some way to cushioning the impact of rising auto financing costs – potentially taking rates below 7% – in part due to competition among lenders and more incentives in the market.
“Even a modest federal rate cut would be viewed as a positive step in the right direction as Americans seek relief from the ongoing pressure on their wallets,” Caldwell said.
Trump supports enactment Car loan interest payments Fully tax-free, which also must be approved by Congress.
mortgage interest rate
Housing affordability has been a major issue, in part because mortgage rates have risen sharply since the pandemic.
Trump said he would lower mortgage rates — even though 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy. Trump’s victory It even led to U.S. 10-year Treasury bond yield risesSend mortgage rates higher.
However, a cut in the Fed’s target interest rate may bring some downward pressure.
“Continued rate cuts could begin to push down mortgage rates, which have been stubbornly high,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. For the week ended Nov. 1, 30-year fixed-rate mortgages The average interest rate on loans is 6.81%According to the Mortgage Bankers Association.
LendingTree senior economist Jacob Channel explained that mortgage rates are unlikely to fall significantly given the current environment.
“As long as investors remain concerned about what the future may bring, it will be difficult for U.S. Treasury yields, as well as mortgage rates, to fall and remain low,” Channel said.
student loans
Student loan borrowers will receive less relief from interest rate cuts. federal student loan interest rates is fixed, so most borrowers will not be immediately affected. (Working to forgive student debt It’s probably no longer a consideration now.
However, if you have private loans, they may be fixed or they may have variable interest rates tied to Treasury bills or other rates. Higher education expert Mark Kantrowitz said that as the Federal Reserve cuts interest rates, interest rates on these private student loans will fall within one to three months, depending on the benchmark.
Still, Kantrowitz calculated that a quarter-percentage-point rate cut would only reduce monthly payments on an adjustable-rate loan by “about $1 to $1.25 per month per $10,000 of debt.”
Eventually, borrowers with variable-rate private student loans may be able to refinance into cheaper fixed-rate loans, he said. But refinancing federal loans into private student loans will 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 term of your loan means you’ll end up paying more interest on your balance.
savings rate
While the central bank has no direct influence on deposit rates, yields tend to be tied to changes in the target federal funds rate.
The highest-yielding online savings accounts have seen significant interest rate changes as the Fed raises interest rates, and are still paying more than 5% Most savers can make money In the past 20 years, this number has risen from around 1% in 2022, according to Bankrate data.
“Yes, interest income from savings accounts, money markets and certificates of deposit will decline, but the most competitive yields will still easily exceed inflation,” McBride said.
The current average interest rate on a one-year CD is 1.76%, but the highest-yielding CD has an interest rate of over 4.5%, which is nearly as good as a high-yield savings account, according to Bankrate.
