Finance
How to prepare for the Fed’s upcoming rate cuts
NEW YORK (AP) — The Federal Reserve is poised to cut its benchmark interest rate next month from a 23-year high, impacting consumers’ debt, savings, auto loans and mortgages. At this point, most experts anticipate a three-quarter point rate cut by the Fed – in September, November and December – although even sharper rate cuts are possible.
“The time has come” for the Fed to cut rates, Powell said in his keynote speech on Friday at the Fed annual economic conference in Jackson Hole, WY. “The direction 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 comments and recent economic data, the central bank is expected to cut its policy rate by a quarter point at its meeting next month and make further rate cuts in coming months.
Here’s what consumers need to know:
What would the Fed’s rate cuts mean for savers?
According to Greg McBride, chief credit analyst at Bankrate, savers should do the same to guarantee attractive returns now, before the expected rate cuts begin.
“For those who may be looking at certificates of deposit or bonds, you want to get into that now,” he said. “There is no point in waiting because interest rates are going to fall.”
McBride emphasized that anyone closer to retirement has a good chance of securing CDs at today’s relatively high rates.
“Doing that will provide a predictable stream of interest income at interest rates that should exceed inflation by a pretty healthy margin,” McBride said.
How would the interest rate cuts affect credit card debt and other loans?
“Your credit card bill won’t plummet the day after the next Fed meeting,” warns Matt Schulz, chief credit analyst at LendingTree. “No one should expect miracles.”
That said, falling interest rates will eventually lead to better interest rates for borrowers, many of whom face some of the highest credit card interest rates in decades. According to WalletHub’s August Credit Card Landscape Report, the average interest rate is 23.18% for new offers and 21.51% for existing accounts.
Still, it is “very important that people understand that interest rates are unlikely to fall that quickly,” Schulz said.
He said it’s important to take steps such as looking 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.
What about mortgages?
The Federal Reserve’s benchmark interest rate does not directly determine or correspond to mortgage rates, but it does have an influence, and the two “tend to move in the same direction,” said Jacob Channel, senior economist at LendingTree.
The past few weeks have been Mortgage rates have already fallen ahead of the Fed’s predicted rate cut, he pointed out.
“It shows that even if the Fed does nothing and just holds steady, mortgage rates can still change,” Channel said.
Melissa Cohn, regional vice president of William Raveis Mortgage, echoed this, saying the important thing is what signal the Fed sends to the market, not the rate change itself.
“I’ve heard from many people who have locked in (their mortgage rates) for the past 18 months, when interest rates were at their peak, already wondering if it’s time to refinance and what savings they might have,” she says. said. “I think the prospects are good, and hopefully that will flow into the real estate market, and we’ll get more buyers into the market.”
Channel said the majority of Americans have a 5% mortgage, so rates may need to fall further than current rates current average of 6.46% before many people consider refinancing.
And car loans?
“With car loans it’s good news that rates will come down, but it doesn’t change the fundamental lock and approach to things, which is that it’s still very important to shop around and not just accept the rate that a car dealer would offer. you at the dealer,” Bankrate’s McBride said. “It’s also very important to save what you can and put as much as you can on that vehicle.”
McBride does predict that the onset of interest rate cuts and the avoiding a recession will lead to lower auto loan rates in 2024 – at least for borrowers with a strong credit profile. For those with lower credit profiles, double-digit declines are likely to persist for the rest of the year.
What’s going on with inflation and the labor market?
Last week the government reported that consumer prices were rising only 2.9% in July compared to a year ago, the smallest increase in more than three years. However, employment data is giving some economists pause. New data has appeared Hiring in July was much lower than expected and the unemployment rate has reached 4.3%the highest in three years – a measure of a weakening economy. That said, robust retail sales have helped allay fears of a recession.
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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The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
