How Will Rate Cuts Impact You?

On Wednesday, the Federal Reserve cut interest rates for the first time in ten years. Specifically, they cut the federal funds rate, which is used by financial institutions when they charge each other for short-term borrowing. Although consumers do not generally do that type of borrowing, the rate cuts still affect Americans in one way or another.

According to The New York Times, one of the biggest effects of the cuts for everyday people is the possibility that the rate cuts have pushed off a recession, meaning peoples’ jobs are safe for longer.

The rate cut could also affect savings accounts. In the years following the 2008 recession, rates were near zero, meaning there was not much incentive to put money in a bank, as returns were so low. Since then, increases in rates have been helpful to savers, but that trend will likely reverse.

The cuts may also impact mortgages. After steadily increasing interest rates, by November of last year, the average rate on a 30-year mortgage was almost 5%. Now it has dropped to 3.75%. This is almost as low as mortgage rates can get, as the average 30-year rate has never gone below 3.3%.

Still, the rate cut will not have a huge effect on the average interest rate on credit card debt or car loans. For that reason, it is not likely that the rate cut will have a notable effect on the spending habits of most people.

Read the full story here.

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