The Federal Reserve is expected to lower its main interest rate next month from its 23-year peak, which will impact consumers in various financial aspects like debt, savings, auto loans, and mortgages. The Fed is likely to carry out three quarter-point cuts – in September, November, and December, although more significant cuts are possible, according to experts.
Federal Reserve Chairman Jerome Powell stated during the Fed’s annual economic conference in Jackson Hole, Wyoming, that it is time for interest rate reduction, with the timing and pace of the cuts depending on incoming data and the economic outlook. Based on Powell’s speech and recent economic indicators, the central bank is anticipated to lower its key rate by 0.25% next month, with further cuts expected in the following months.
For savers, it is advisable to secure favorable yields now as the expected rate cuts take effect, advised Greg McBride, Bankrate’s chief credit analyst. Locking in Certificates of Deposit or bonds promptly is recommended, especially for those nearing retirement, to benefit from the current comparatively high rates. McBride emphasized that securing CDs now can provide a predictable interest income stream that may outpace inflation significantly.
Regarding credit card debt and borrowing, the rate cuts will eventually lead to more favorable rates for borrowers, though the impact may not be immediate. LendingTree’s Matt Schulz cautioned against expecting instant changes in credit card bills following the next Fed meeting, considering that rates are unlikely to drop rapidly. Exploring options like balance transfers or seeking lower-interest loans can be more effective in the short term than waiting for interest rates to decline.
In terms of mortgages, while the Federal Reserve’s benchmark rate does not directly dictate mortgage rates, they are influenced by it, noted LendingTree economist Jacob Channel. Mortgage rates have already decreased in anticipation of the Fed’s impending cut. Industry experts like Melissa Cohn of William Raveis Mortgage stressed that the Fed’s signal to the market is crucial, possibly prompting more potential buyers to consider refinancing their mortgages and entering the real estate market.
Auto loans are also expected to see lower rates following the rate cuts, encouraging borrowers to shop around for better deals. Bankrate’s McBride emphasized the importance of saving and making substantial down payments, especially for individuals with less robust credit profiles. Despite overall positive economic indicators like moderate inflation and strong retail sales, uncertainties remain related to hiring rates and job market stability, which could influence the Fed’s future rate adjustments beyond September.