Courtesy FOX Business
The Federal Reserve cut interest rates for the first time in over 10 years on Wednesday, and you may be snoozing at this news already. But in fact, what the Fed does – and this news in particular – has a big effect on your money. We asked FOX Business Network’s Jackie DeAngelis to explain in user-friendly terms exactly how the Fed’s rate cut affect you and your wallet.
If you’re wondering why you should care in the first place, knowing what the Fed is doing is a matter of financial hygiene, DeAngelis told Ladders. “Generally I think it’s important for everybody who’s in control of their financial life what the Fed is, what they’re doing, and where they are in this process.”
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An interest rate cut, like the one that happened last Wednesday, “means lower borrowing costs,” DeAngelis explained. For the consumer, that means “lower credit card rates, lower auto loans, lower mortgage rates. Things that we’re doing in our daily lives. We’re buying homes, we’re buying cars, we’re financing our purchases on credit cards.”
All those things generally stimulate the economy, and eventually, a rate cut also translates into lower borrowing costs for businesses. “What happens – over the last 10 years when interest rates have been low – is the stock market tends to rise as a result of all that different activity,” DeAngelis told Ladders
That’s the big picture – here’s what the cut means for you.
“For a normal person who has invested in their 401K, they could expect to see an increase as a result of rates being cut today and remaining low roughly for a decade now,” said DeAngelis.
“On the mortgage side,” she explained, “rates are below 4% again and could even go potentially from there. As a result of that, you find that qualified buyers can easily get access to mortgages and home buying because, with the rates so low, the banks will be looking to increase their lending.” Looking to buy a house? The odds are now in your favor. “It may be time for [people] to take that step.”
Auto loans will also “see a reduction,” said DeAngelis.
It’s a mixed bag, but mostly positive, DeAngelis said. “The credit card rates tend to be on the higher side in general, but the Feds puts pressure on them to reduce those rates as well.”
“There is one segment of the population that [the rate cut] hurts: savers,” said DeAngelis. “Savings rates for certificate of deposits, bank account savings rates, and savings accounts have been very, very low over the last decade as well.” Basically, saving just isn’t paying off right now, and won’t continue to after the rate cut. “If you were taught to work hard and not rack up debt, save up money and put it in the bank, you’re not necessarily being rewarded in the present financial conditions.”
However, if you’re in the market to borrow or buy, expect these changes to happen sooner rather than later. “They tend to happen very quickly,” DeAngelis says, especially since the rate cut was anticipated. So look on the bright side. “These are changes people will start to notice immediately.”