On Wednesday, the Federal Reserve interest rate was cut again by 25 points. A total of three consecutive rate cuts have reduced the federal funds rate by one-fourth of a percentage point since September.
Although it may still take some time before reduced rates significantly impact household budgets, this decision is welcome news for customers who are struggling under the burden of excessive borrowing prices following a series of eleven rate rises from March 2022 to July 2023.
Interest rates “took the elevator going up in 2022 and 2023 but are taking the stairs coming down,” commented Greg McBride, chief financial analyst at Bankrate.com.
The December adjustment follows previous reductions in September and November, during which the Fed implemented cuts of 50 basis points and 25 basis points, respectively. Since September, the federal funds rate has decreased by one percentage point, indicating a notable change in the Federal Reserve’s strategy to bolster the economy.
The Fed’s recent rate cuts have a range of effects on personal finances.
Table of Contents
This is What The Interest Rates Cuts Mean:
For credit cards,
most have a variable interest rate, meaning they are directly tied to the Fed’s actions. After the Fed raised rates, the average credit card interest climbed above 20%, the highest in years. While the rate cuts have eased this somewhat, they don’t provide much immediate relief. A small reduction might save a few bucks, but experts recommend consolidating debt with a 0% balance transfer card or a personal loan for bigger savings.
Auto Loans
Auto loan rates are still high, with used car loans averaging 13.76% and new car loans at 9.01%. These loans are fixed, so they won’t change with the Fed’s rate cuts. To save money, it’s best to shop around for the lowest rate.
Mortgages
Mortgage rates, on the other hand, don’t follow the Fed’s cuts either. They’re largely influenced by Treasury yields and the economy. As a result, the average rate for a 30-year mortgage has actually risen recently. With fewer rate cuts expected in 2025, mortgage rates are likely to stay close to 7%. Overall, while the Fed’s rate cuts help somewhat, managing your debt directly remains the most effective strategy.