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The Federal Reserve is poised to cut its benchmark interest rate next month from its 23-year high, with consequences for consumers when it comes to debt, savings, auto loans and mortgages. Right now, most experts envision three quarter-point Fed cuts \u2014 in September, November and December \u2014 though even steeper rate cuts are possible.<\/p>\n
\u201cThe time has come\u201d for the Fed to reduce interest rates, Powell\u00a0said Friday in his keynote speech<\/a>\u00a0at the Fed\u2019s\u00a0annual economic conference<\/a>\u00a0in\u00a0Jackson Hole, Wyoming<\/a>. \u201cThe direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.\u201d<\/p>\n Based on Powell\u2019s remarks and recent economic data, the central bank is expected to cut its key rate by a quarter-point when it meets next month and to carry out additional rate cuts in the coming months.<\/p>\n Here\u2019s what consumers should know:<\/p>\n According to Greg McBride, chief credit analyst for Bankrate, savers should\u00a0lock in attractive yields<\/a>\u00a0right now, before the expected rate cuts begin.<\/p>\n \u201cFor those who might be looking at Certificates of Deposit<\/a> or bonds \u2014 you want to jump on that now,\u201d he said. \u201cThere is not a benefit to waiting because interest rates are going to be moving lower.\u201d<\/p>\n McBride stressed that anyone closer to retirement has a good opportunity to lock in CDs at the current relatively high rates.<\/p>\n \u201cIf you do so, you\u2019ll provide yourself a predictable flow of interest income at rates that should outpace inflation by a pretty healthy margin,\u201d said McBride.<\/p>\n \u201cYour credit card bill is not going to plunge the day after the next Fed meeting,\u201d cautions LendingTree chief credit analyst Matt Schulz. \u201cNobody should expect miracles.\u201d<\/p>\n That said, the declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest\u00a0credit card interest rates<\/a>\u00a0in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub\u2019s August Credit Card Landscape Report.<\/p>\n Still, \u201cit\u2019s really important for people to understand that rates probably aren\u2019t going to fall that quickly,\u201d Schulz said.<\/p>\n He said it\u2019s important to take steps such as seeking a 0% interest balance transfer or a low-interest personal loan. You can also call your credit card issuer to see if you can negotiate a better rate.<\/p>\n \u201cIn the short term, those things will have a much bigger effect than falling interest rates,\u201d Schulz said.<\/p>\n The Federal Reserve\u2019s benchmark rate doesn\u2019t directly set or correspond to mortgage rates, but it does have an influence, and the two \u201ctend to move in the same direction,\u201d said LendingTree senior economist Jacob Channel.<\/p>\n In recent weeks,\u00a0mortgage rates have already declined<\/a>\u00a0ahead of the Fed\u2019s predicted cut, he pointed out.<\/p>\n \u201cIt goes to show that even when the Fed isn\u2019t doing anything and just holding steady, mortgage rates can still move,\u201d Channel said.<\/p>\n Melissa Cohn, the regional vice president of William Raveis Mortgage, echoed this, saying that the most important thing is what signal the Fed is sending to the market, rather than the rate change itself.<\/p>\n \u201cI\u2019ve heard from a lot of people who locked in (their mortgage rate) over the course of the past 18 months, when rates were at their peak, already asking whether it\u2019s time to refinance and what savings they could have,\u201d she said. \u201cI think that the outlook is good, and hopefully that spills into the real estate market, and we get more buyers in the market.\u201d<\/p>\n Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their\u00a0current average of 6.46%<\/a>\u00a0before many people consider refinancing.<\/p>\n \u201cWith auto loans, it\u2019s good news that rates will be falling, but it doesn\u2019t change the basic blocking and tackling of things, which is that it\u2019s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,\u201d said Bankrate\u2019s McBride. \u201cIt\u2019s also really important to save what you can and be able to try to put as much down on that vehicle as you can.\u201d<\/p>\n McBride does predict that the beginning of rate cuts and the\u00a0avoidance of a recession<\/a>\u00a0will lead to lower auto loan rates in 2024 \u2014 at least for borrowers with strong credit profiles. For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.<\/p>\n Last week, the government reported that consumer prices rose\u00a0just 2.9% in July<\/a>\u00a0from a year ago, the smallest increase in over three years. Employment data, however, gives some economists pause. New data has showed\u00a0hiring in July was much less than expected and the jobless rate has reached 4.3%<\/a>, the highest in three years \u2014 one measure of a weakening economy. That said, robust retail sales have helped quell fears of a recession.<\/p>\n The rate at which the Fed continues to cut rates after September will depend in part on what happens next with inflation and the job market, in the coming weeks and months.<\/p>\n<\/div>\nWhat would the Fed\u2019s rate cuts mean for savers?<\/h4>\n
How would the rate cuts affect credit card debt and other borrowing?<\/h4>\n
How about mortgages?<\/h4>\n
And auto loans?<\/h4>\n
What\u2019s going on with inflation and the job market?<\/h4>\n
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