this Fed expected to decrease interest rate At the end of the two-day meeting on December 18, rates were cut by another quarter of a percentage point.
To date, the central bank has move slowly When inflation reached a 40-year high, they quickly raised interest rates and readjusted policy.
“This may be the last rate cut for a while,” said Jacob Channel, senior economic analyst at LendingTree.
With some uncertainty about the president-elect, the Fed may choose to take a “wait-and-see approach” Donald Trump’s fiscal policy he said as he began his second term.
at the same time, high interest rates Impacting consumer borrowing costs on everything from auto loans to credit cards.
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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.
A December rate cut could lower the Fed’s overnight borrowing rate by a quarter of a percentage point, or 25 basis points, to 4.25% to 4.50% from the current level of 4.50% to 4.75%.
Brett House, an economics professor at Columbia Business School, said this “will alleviate financial stress to some extent,” but not across the board.
“Some of the most important interest rates that people face are not based on Fed rates,” he said.
From credit cards to car loans to mortgages, here’s a detailed explanation of how it works:
credit card
Since most credit card There are floating interest rates, which are directly tied to the Federal Reserve’s benchmark. According to Bankrate data, after the interest rate hike cycle, the average credit card interest rate rose from 16.34% in March 2022 to the current 20.25%, which is close to record high.
Although the central bank began to cut interest rates in September, the average interest rate of credit cards almost no change. Greg McBride, chief financial analyst at Bankrate, said card issuers tend to be slow to respond to Fed rate cuts.
“There will be one step lower, but there will be a lag of up to three months,” McBride said.
better move He explains that the best approach for those with credit card debt is to switch to a 0% balance transfer credit card and aggressively pay down the balance.
“Interest rates are not going to fall fast enough to put a burden on consumers who are heavily indebted,” he said.
mortgage interest rate
Because 15-year and 30-year mortgage rates are fixed and largely tied to Treasury yields and the economy, they are inconsistent with Fed policy. Since most people have fixed-rate mortgages, their interest rates won’t change unless they refinance or sell their current home and buy another property.
The average interest rate on a 30-year fixed-rate mortgage for the week ended December 6 was 6.67%According to the Mortgage Bankers Association.
Those rates are down from last month but well above the 2024 low of 6.08% in late September.
“Looking ahead, mortgage rates are likely to continue to fluctuate from week to week, and it’s impossible to say with certainty where they will ultimately go,” Channel said.
car loan
car loan is fixed. However, the payments are getting bigger because car price is rising, which results in Not very affordable Monthly payment.
The average interest rate on a five-year new car loan is currently about 7.59%, according to Bankrate.
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. “The price tags are high and the amounts borrowers are financing are very, very high,” he said. $40,000on average.
“Even with a very low interest rate, the monthly payment can exceed your budget.”
student loans
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 or they may have variable rates tied to Treasury bills or other rates, meaning that as the Fed cuts interest rates, so will the interest rates on private student loans.
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 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 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.
As the Federal Reserve has raised interest rates a series of times in recent years, high-yield bonds have savings Bankrate’s McBride said the account rates offer the best returns in decades and are still paying nearly 5%.
“It’s still a good time to save and it’s still a good time to have cash,” he said. “The most competitive offers remain well ahead of inflation and this is likely to continue.”
