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Federal reserve expected to cut interest rate
The federal reserve started its September meeting and it's expected to end on Wednesday with its first interest rate cut since the pandemic. FOX 26 Business Reporter Tom Zizka says a cut would provide relief for consumers.
HOUSTON - The Federal Reserve is expected to end its September meeting with its first interest rate cut since the pandemic. It was early 2022, when the Central Bank made the first of 11 rate hikes to try curbing a dramatic rise in inflation, taking interest rates from near-zero to almost 5.5%.
Now, with inflation slowing, a cut would take the edge of the cost of borrowing money.
PREVIOUS COVERAGE: US inflation hits 3-year low as Federal Reserve set to cut interest rates
The first place most consumers would see a slight effect will be in their credit card expenses, already at a collective record $1.14 trillion. As most card rates are variable, a $5,000 balance, at 25% APR will cost an average $1,250 a year in interest charges. Dropping the APR down to 24% will save just $50 a year, in interest.
Auto loans could be a little cheaper, though interest rates are just a part of the financing package that considers the cost of a loan, including credit rating, and how much you're trying to borrow.
While vehicle prices have dropped a bit in the last year, they remain above pre-pandemic levels, so buyers will want to focus on a total-price, and whether the monthly payment fits their budget.
Mortgages, meantime, are a little disconnected from the Fed's decisions. Rates have already slipped since the Spring, when a 30-year fixed rate loan was above 7%, versus today's rates that are almost three-quarters of a point lower. A Fed cut should not make, or break, a homebuyer's decision, but it might inspire some who are on the fence about moving.
Financial observers say there is little chance the Fed does not make a cut, and whatever comes will not have a significant impact on consumer wallets. It will, though, set the stage for more.
"It's really not so much about today's rate cut," says Outlook Wealth Advisors' Michael Neuenschwander. "They have two or more to go (this year), and most projections for the Fed show they'll continue to cut rates through 2025."
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Personal loans and private student loans will also see some relief from a rate cut. As to how much relief in the coming months, observers will pay close attention to Fed chair Jerome Powell's announcement for clues about how serious the central bank is about making these cuts.