What the Fed Rate Cut Means for You
Markets weren’t too pleased with the Federal Reserve in September 2019.
At the time, the central bank cut rates by only a quarter point to a range of 1.75% to 2%, and noted the cut was only meant to serve as an insurance policy against future developments.
“It is an unusual situation,” Fed boss Jerome Powell said at the time. “The U.S. economy in itself is strong...The difference here is we have significant risks” that elected officials will have to manage. Still, the Fed decided to cut anyway to safeguard against unexpected developments.
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The Central Bank Left the Door Open to More Cuts
The Fed did leave door open to future cuts, noting that it would “act as appropriate to sustain the expansion” as it evaluates the data.
“There’s a range of things that they’re looking at. Really, the low inflation allows the Fed some latitude to take preemptive steps and hopefully avoid moving in the future to something like negative rates,” said Mark Haefele, global chief investment officer at UBS Wealth Management, as also noted by CNBC. “Because they did only 25 basis points, they avoided doing what some would have felt was more shock and awe with 50 basis points. So, they can move towards language like ‘data dependent’ now that they’ve shown they are prepared to be flexible.”
With cuts, the question from investors is, “How do they affect me?”
For one, mortgage rates could be on the way down. Since the Fed’s last rate cut in July 2019, mortgage refinancing has increased. Applications were even up nearly 170% in early September 2019 because of that, according to The Wall Street Journal (WSJ).
Credit card rates could see an impact, too.
At the moment, according to WSJ, the average annual percentage rate is 19.24%. A decrease in interest rates can affect the average credit card APR. In addition, according to Huffington Post, “lower rates mean consumers with strong credit scores should still have access to credit cards offering zero percent interest on balance transfers.”
If you’re thinking of buying a house, refinancing, buying a car, lower rate news is good news than if you’re heading off to retirement relying on a higher return on savings.
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