NEW YORK (news agencies) — The Federal Reserve is poised to cut its benchmark interest rate next month from its 23-year high, with consequences for consumers when it comes to debt, savings, auto loans and mortgages. Right now, most experts envision three quarter-point Fed cuts — in September, November and December — though even steeper rate cuts are possible.
“The time has come” for the Fed to reduce interest rates, Powell said Friday in his keynote speech at the Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Based on Powell’s remarks and recent economic data, the central bank is expected to cut its key rate by a quarter-point when it meets next month and to carry out additional rate cuts in the coming months.
Here’s what consumers should know:
According to Greg McBride, chief credit analyst for Bankrate, savers should lock in attractive yields right now, before the expected rate cuts begin.
“For those who might be looking at Certificates of Deposit or bonds — you want to jump on that now,” he said. “There is not a benefit to waiting because interest rates are going to be moving lower.”
McBride stressed that anyone closer to retirement has a good opportunity to lock in CDs at the current relatively high rates.
“If you do so, you’ll provide yourself a predictable flow of interest income at rates that should outpace inflation by a pretty healthy margin,” said McBride.
“Your credit card bill is not going to plunge the day after the next Fed meeting,” cautions LendingTree chief credit analyst Matt Schulz. “Nobody should expect miracles.”
That said, the declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.
Still, “it’s really important for people to understand that rates probably aren’t going to fall that quickly,” Schulz said.
He said it’s important to take steps such as seeking a 0% interest balance transfer or a low-interest personal loan. You can also call your credit card issuer to see if you can negotiate a better rate.
“In the short term, those things will have a much bigger effect than falling interest rates,” Schulz said.
The Federal Reserve’s benchmark rate doesn’t directly set or correspond to mortgage rates, but it does have an influence, and the two “tend to move in the same direction,” said LendingTree senior economist Jacob Channel.
In recent weeks, mortgage rates have already declined ahead of the Fed’s predicted cut, he pointed out.
“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” Channel said.
Melissa Cohn, the regional vice president of William Raveis Mortgage, echoed this, saying that the most important thing is what signal the Fed is sending to the market, rather than the rate change itself.
“I’ve heard from a lot of people who locked in (their mortgage rate) over the course of the past 18 months, when rates were at their peak, already asking whether it’s time to refinance and what savings they could have,” she said. “I think that the outlook is good, and hopefully that spills into the real estate market, and we get more buyers in the market.”
Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their current average of 6.46% before many people consider refinancing.
“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” said Bankrate’s McBride. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”
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