Here’s what a Fed rate cut this week could mean for your wallet

The Federal Reserve hasn’t lowered interest rates in four years, raising the federal funds rate 11 times since 2022. Now, much to the relief of Wall Street and many consumers, we appear to be on the verge of a cut.  The Federal Reserve will meet on September 17 and 18, where it is widely expected to cut the federal funds rate by either 25 basis points or 50 basis point, with a growing number of estimates favoring that half-point cut. It’s a long-awaited move that could have a broad impact on American finances. The Fed has gradually brought rates from 0% in 2022 to 5.25%-5.50% in July of 2023, where it has remained ever since. In August, though, Chairman Jerome Powell announced, “The time has come for policy to adjust. The 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.” The Fed’s decision-making process can be confusing to even seasoned economists—and it’s often the subject of debate. But the impact on the average American is a little easier to grasp. Here’s what you can expect to see in the days and weeks following the Fed’s meeting this week. What will a Fed rate cut mean for me if I’m trying to borrow money? It’s going to get cheaper. Lower-interest rates mean it will cost less to borrow, so if you’re considering taking out a loan, it might be worth pushing that out by a few days or weeks til we get the word, as it could mean substantial savings. What will a Fed rate cut mean if I’m trying to save money? The flipside of cheaper loan rates is saving rates will go down as well. So whether you’re thinking of putting money in a CD or high-yield savings account (which often pay a lot more than big banks), you’re going to see a smaller return. Interest rates on both of those savings vehicles have been at 5% or higher for the past several years. With the rate cut, you can expect to see them fall to 4% at best, perhaps lower. That’s still significantly higher than many financial institutions, though. That makes this a good time to monitor your interest rate and consider shopping around for a better one. One important note: If you lock in a CD before the Fed meets, you’ll be guaranteed that rate for the life of the certificate. Those rates have been dropping in anticipation of this cut, however. Will my credit card interest rate change after the Fed cuts rates? Credit card rates typically adjust soon after the Fed changes the federal funds rate, so you can expect the interest rate on your Visa, Mastercard, American Express or whatever your card of choice might be to drop a little bit. Don’t expect that to have a huge impact on your payments, though. Credit cards charge massive interest rates, so even a slight drop won’t make a significant difference. What will a Fed rate cut mean for mortgage rates? Home-loan rates have slowly been dropping for the past several months, as the Fed has moved closer to a cut. They’re likely to go down again after it’s official, which will be especially good news for anyone with an adjustable rate mortgage or a home equity line of credit (HELOC). If you’re in the market for a fixed-rate mortgage, though, it’s best to not time your decision around the Fed. (Those rates are more closely tied to Treasury yields.) Lock in when you’re ready. Should rates take a steep dive in the coming months, you always have the option of refinancing. Will a Fed rate cut make it a good time to buy a car? Eventually, yes, but probably not immediately. Auto loans take their lead from the Fed’s decisions, but not immediately. The good news, though, is that car prices overall have been dropping of late. The average transaction price for a new car is about 3% lower than it was during the market peak in December 2022, according to Kelley Blue Book. Used car prices, meanwhile, are down 10%, on average, over the past year. Why has the Fed kept rates so high for so long? Beyond the staggering death toll created by the pandemic, it caused all sorts of economic headaches as well. With businesses closed and supply chains affected, the Fed slashed rates to create a more favorable environment for job growth. Lower rates made it easier for businesses to expand—and that led to the current bull market. But with that growth, inflation began to rise—and the only way to keep that in check is with higher-interest rates. Inflation proved stubborn, so that’s why rates have remained high. With inflation now starting to ebb, the Fed seems to believe the time has come to ease up on those rates. Is this the only rate cut planned for 2024? That’s the million-dollar question! Right now, the CME FedWatch Tool, which monitors sentiment, is putting higher odds on a 50-basis point cut this month. There are two more Fed meetings this year, though—one in early November and one in mid-December. Some experts are expecting the fed funds rate to be below 4% by year’s end. At this point