Rate Cut: What Consumers Need to Knowby Tim Manni
As we mentioned in our previous post, the cutting of the Fed Funds rate will have little to no effect on mortgage rates. Rather, the Fed Funds rate will affect consumers with variable rate products. As Mary Pilon of the Wall Street Journal wrote, “consumers should take advantage of the rate cut to accelerate efforts to pay down debt and save:”
The Fed funds rate mainly impacts two major things for consumers: variable interest rates (like those on credit cards) and home equity lines of credit. The prime rate, which is a term usually buried in the fine print of your statements as the amount of interest you might pay, can be impacted. Basically, a big question this time around is whether consumers will take advantage of the low rate to pay off debts or not.
Rates on certain adjustable-rate mortgages (ARMS) could go down – a relief for some homeowners struggling to make their monthly payments or looking to refinance their homes.
The picture is less rosy for short-term savers, who can expect interest rates on certificates of deposit (CDs) to dip.
The rate cut by the Fed was in response to their concern over the recent lag in positive economic activity. The only possible downfall to this cut could be that it generates too much market activity that may in turn cause a rise in inflation.