NEW YORK — The Federal Reserve is poised to cut its benchmark interest rate from a 23-year high next month, impacting consumers’ debt, savings, auto loans and mortgages. For now, most experts are projecting three-quarter-point Fed cuts — in September, November and December — though even steeper cuts are possible.
“The time has come” for the Fed to cut rates, Powell says said in his keynote speech on Friday at the Fed annual economic conference in Jackson Hole, Wyoming“The direction we are heading is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks.”
Based on Powell’s comments and recent economic data, the central bank is expected to cut its key interest rate by a quarter point at next month’s meeting and to implement further rate cuts in the coming months.
Here’s what consumers need to know:
According to Greg McBride, chief credit analyst at Bankrate, savers would capture attractive returns now, before the expected rate cuts take effect.
“For those who might be looking at certificates of deposit or bonds, you should jump on those now,” he said. “There’s no advantage to waiting because interest rates are going to come down.”
McBride emphasized that anyone closer to their retirement date has a good chance of locking in CDs at today’s relatively high rates.
“If you do that, you provide a predictable stream of interest income at rates that should outpace inflation by a fair margin,” McBride said.
“Your credit card bill isn’t going to drop the day after the next Fed meeting,” warns Matt Schulz, chief credit analyst at LendingTree. “No one should expect miracles.”
That said, the falling benchmark rate will ultimately lead to better rates for borrowers, many of whom face some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new listings and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.
Still, “it’s very important that people understand that interest rates are not likely to come down that quickly,” Schulz said.
He said it’s important to take steps like applying for a 0% interest balance transfer or a low-interest personal loan. You can also call your credit card company to see if you can negotiate a better rate.
“In the short term, these things will have a much bigger impact than falling interest rates,” Schulz said.
The Federal Reserve’s benchmark rate doesn’t directly determine or match mortgage rates, but it does have an impact and the two “generally move in the same direction,” said Jacob Channel, senior economist at LendingTree.
Over the past few weeks, mortgage interest rates have already fallen He pointed out that this will happen before the Fed’s predicted rate cut.
“It shows that even if the Fed does nothing and rates stay the same, mortgage rates can still move,” Channel said.
Melissa Cohn, regional vice president of William Raveis Mortgage, agreed, saying that what matters most is the signal the Fed sends to the market, rather than the rate change itself.
“I’ve heard from a lot of people who have locked in their mortgage rates over the last 18 months, when rates were at their peak, and they’re already wondering if it’s time to refinance and what they could save,” she said. “I think the outlook is good and hopefully that will spill over into the real estate market and we’ll get more buyers into the market.”
Channel said the majority of Americans have mortgages with interest rates of 5%, so interest rates may have to fall even further than expected. current average of 6.46% before many people consider refinancing.
“With auto loans, it’s good news that interest rates are going to come down, but it doesn’t change the basics of blocking and dealing, which is that it’s still really important to shop around and not just accept whatever interest rate a car dealership would offer you at the dealership,” Bankrate’s McBride said. “It’s also really important to save what you can and try to put as much money down on that vehicle as you can.”
McBride does predict that the start of rate cuts and the avoiding a recession will lead to lower auto loan rates in 2024 — at least for borrowers with strong credit profiles. For those with lower credit profiles, double-digit rates are likely to persist through the rest of the year.
Last week the government reported that consumer prices have risen only 2.9% in July from a year ago, the smallest increase in more than three years. However, employment data has some economists thinking. New data showed hiring in July was much lower than expected and the unemployment rate rose to 4.3%the highest in three years — a measure of a weakening economy. That said, robust retail sales have helped quell recession fears.
The pace at which the Fed continues to cut rates after September will depend in part on what happens to inflation and the labor market in the coming weeks and months.
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