What the just-announced Fed interest rate cut means for your credit cards and savings
Published 2:03 PM EDT Sep 18, 2019The Federal Reserve lowered its benchmark interest rate by a quarter percentage point Wednesday for the second time in the past two months. And economists are forecasting a third cut by the end of the year.
Yet Wednesday’s move unwinds just a small portion of the Fed’s nine hikes from late 2015 through last year, says Greg McBride, chief financial analyst at Bankrate.com. A look at how a Fed cut, which trims its benchmark rate to a range of 1.75% to 2%, could affect these products:Another cut? Fed looks ready to lower interest rates again with the economy facing risksCredit card rates are generally tied to the prime rate, which in turn is affected by the Fed's benchmark rate. While the rate will eventually drop by a quarter percentage point, it might not happen as quickly as rates increased.
A quarter-point reduction on a $30,000 home equity line of credit would shave the monthly payment by $6.25, McBride says. Two such cuts would trim the bill by $12.50. By contrast, the nine rate increases since late 2015 have lifted the same payment by $56. But as with auto loans, only about half of July’s quarter-point rate cut was passed through to adjustable mortgage rates, Kapfidze says.The Fed’s key short-term rate affects 30-year mortgages – the most common purchase home loan – and other long-term rates only indirectly. Those rates more closely track inflation expectations and the long-term economic outlook, and have already fallen substantially in recent months as concerns about the economy and low inflation have grown.
Banks move quickly on such longer-term accounts because they don’t want to get stuck paying higher returns for extended periods when rates are falling, McBride says.
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