The Fed Just Cut Interest Rates. Here’s What That Means for You.

Your borrowing and spending

One interest rate that has risen by as many percentage points as the federal funds rate in the past few years is the one you probably wish would stay lower: the average interest rate on credit-card debt. It is now nearly 18 percent, and unlike savings yields and mortgage rates, it has not fallen in recent months. That probably means you should not expect it to fall immediately after Wednesday’s cut.

Rates on car loans have risen since 2016, but they fell back slightly this year. After peaking near 5 percent at the end of last year, the rate on the average five-year loan for a new car is now just under 4.75 percent, according to Bankrate.com. Like rates on credit cards, the rate on car loans does not always move in line with the Fed: It fell in 2016 even as the Fed raised rates.

Those rates help explain, in part, why most economists do not expect that a single Fed rate cut will be enough to change consumers’ spending habits.

“The impact on the household budget of one rate cut is inconsequential,” Mr. McBride said. “It’s not like it’s going to unleash a flurry of consumer activity”

Your job

In the scope of your financial life, of course, what you pay to borrow — or what you are paid to save — typically takes a back seat to more basic questions about how much you are able to work and to earn. Those questions appear to be on Fed officials’ minds as they cut rates.

“It’s better to take preventative measures than to wait for disaster to unfold,” John Williams, the president of the Federal Reserve Bank of New York, said two weeks ago, in comments that were widely interpreted as signaling that the rate cut was on the way.

In other words: By moving to reduce rates, now and possibly again this fall, policymakers are trying to reduce the risk that millions of Americans could be thrown out of work. They are trying to ward off the prospect of a job-killing recession by giving the economy a little extra boost.

Article source: https://www.nytimes.com/2019/07/31/your-money/fed-interest-rates.html?emc=rss&partner=rss