The Fed made its second interest rate cut of the year, and borrowers could soon start feeling relief.
The Federal Open Market Committee opted for a quarter-point cut in its announcement on Wednesday. The call aligns with expectations: CME FedWatch projected a near-total chance of a reduction in the hours before the meeting. The Fed's economic projections released last month also penciled in two more normal-sized rate cuts for the year.
Financial analysts told Business Insider that, after restrictive policy for much of the year, a pattern of interest rate cuts could start making it easier for Americans to finance homes, cars, and credit cards.
"Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country," Fed Chair Jerome Powell said last month. "Everything we do is in service to our public mission."
Consumers could start to feel the impact of Fed decisions
Even with a sluggish labor market and inflation above Fed's 2% goal, Wednesday's rate cut could materially help borrowers.
Thirty-year fixed mortgages, two-year auto loans, and credit card rates tend to move up and down alongside the federal funds rate, though this can change if there are major swings in inflation and investor behavior. And, while it takes time for Fed decisions to trickle down to Americans, consecutive rounds of cuts could make borrowing more affordable.
Mortgage rates are already an example: 30-year fixed rates have largely cooled in recent months in anticipation of the fall Fed cuts.
And, on the macro level, sustained interest rate cuts could make it easier for businesses to borrow and invest money — which could free up more funds for them to hire employees. A hiring boost would help jump-start a slowing job market, and newly hired employees would have more money to spend on essentials and discretionary expenses. All these factors are a recipe for a more thriving economy.
Savers, however, could see lower returns on their investments. "Consumers should be caring about this rate cut because it could make debt more affordable, but it can also lower the yield that people are getting on savings vehicles like high-yield savings accounts or certificates of deposits," Sean Pyles, a personal finance expert at NerdWallet, told Business Insider after the September cut. A second rate reduction doubles down on these impacts.
At the same time, Kates said Americans looking to take out loans could benefit.
"For people who are borrowing — so anybody who's got a mortgage, is itching for a refinance, or anybody who's got credit card debt or wants to take out a home equity line of credit — that's something that they should start to plot," Kates said.
