The Federal Reserve is anticipated to lower its benchmark interest rate from a 23-year high in the coming month, marking a significant change in monetary policy. This move is expected to have a ripple effect on various aspects of the economy, particularly for consumers. Experts predict three quarter-point reductions in September, November, and December, with the possibility of even deeper cuts.
The Fed Chair Jerome Powell has signaled a shift towards easing interest rates, emphasizing that the specifics of the rate cuts will be determined by new economic data, future forecasts, and risk assessments.
Impact on Mortgages:
While the Federal Reserve’s benchmark rate doesn’t directly determine mortgage rates, it influences them significantly, with both typically moving in tandem. LendingTree senior economist Jacob Channel observed that mortgage rates have already begun to fall in anticipation of the Fed’s expected rate cuts. Channel highlighted that even when the Fed remains inactive, mortgage rates can still fluctuate. Melissa Cohn, regional vice president at William Raveis Mortgage, agrees, emphasizing that the key factor is the signal the Fed is sending to the market, rather than the rate change itself.
Impact on Savers and Credit Card Debts:
Greg McBride, chief credit analyst at Bankrate, advises savers to lock in favorable yields now before the anticipated rate cuts come into play. He suggests considering Certificates of Deposit or bonds to capitalize on current rates. LendingTree chief credit analyst Matt Schulz cautions against expecting immediate relief from credit card debt. While lower benchmark rates will eventually lead to more favorable rates for borrowers, the impact won’t be immediate. It’s worth noting that many consumers are currently dealing with some of the highest credit card interest rates in decades, with WalletHub’s August Credit Card Landscape Report showing average rates of 23.18% for new offers and 21.51% for existing accounts.
Impact on Inflation and the Job Market:
Recent government reports show a positive trend in inflation, with consumer prices increasing by just 2.9% in July compared to the previous year, marking the smallest rise in over three years. However, recent employment data has raised concerns. July’s hiring was significantly lower than anticipated, and the unemployment rate has climbed to 4.3%, the highest in three years, indicating potential economic weakness. On the other hand, strong retail sales have eased concerns about a recession. The Federal Reserve’s future rate cuts will depend heavily on the developments in inflation and the job market over the coming weeks and months.
The anticipated rate cuts are a significant event that could influence consumer finances, housing markets, and overall economic growth. It remains to be seen how these changes will play out in the months ahead, but the Fed’s decision to lower rates underscores the central bank’s commitment to navigating a challenging economic landscape.
