Federal Reserve Rate Lowering: Examining Its Effects on Credit Cards, Home Loans, Savings Accounts, andMore
The US Federal Reserve has made a significant move by announcing a rate cut, moving the benchmark interest rate to the 4-4.25% range. This decision is expected to provide respite from high borrowing costs in the US economy.
The rate cut is likely to have a direct impact on the interest rates of various loans, including auto loans and credit card borrowings. The average rate on a five-year new car loan currently stands at nearly 7%, and potential car buyers may benefit from lower borrowing costs on new loans due to the rate cut. Similarly, the Federal Reserve's rate cut will likely lower the interest rate on credit card borrowings, offering relief to consumers who carry balances on their cards.
However, it's important to note that mortgage rates in the US are influenced by factors beyond the Fed's interest rate, such as treasury yields and the nation's overall economic growth. The immediate impact of the Federal Reserve's rate cut on mortgage rates has already been priced in, but a series of rate cuts expected in 2025 and 2026 can put 'gradual downward pressure' on US mortgage rates. As of Tuesday, the average 30-year fixed-rate mortgage rate in the US was 6.13%, down from its more than 7% peak level in January 2025.
While rate cuts are beneficial for borrowers, they can be tough on savers. The rate cut is likely to result in a drop in yields on high-interest savings accounts and CDs, offering less return for those who save their money.
The Federal Reserve's interest rate has no direct influence on banks' deposit rates, but they are likely to move in the same direction. This means that savers may see lower returns on their deposits as well.
It's also worth noting that student loans in the US are based on a fixed interest rate that is revised only once a year on 1 July 2025. Borrowers with variable-rate private student loans may automatically get a lower interest rate due to the Fed cuts, but those with fixed-rate loans will not see an immediate impact.
In conclusion, the Federal Reserve's rate cut is intended to boost overall buyer sentiment and provide relief from high borrowing costs. While the immediate impact on mortgage rates may be minimal, a series of rate cuts can put downward pressure on mortgage rates in the future. However, the rate cut is likely to result in lower returns for savers in the form of lower yields on savings accounts and CDs.
