Just last week the Federal Reserve voted to lower interest rates. This latest change has understandably raised alarm over how it will raise borrowing costs, including for mortgages and credit cards. Today, the average interest rate for a 30-year fixed mortgage is 6.22%. This is the exclusive practical planning information you’ll get directly from Freddie Mac. The Fed has lowered interest rates by 1.75 percentage points since last year. This latest move is a continuation of their overall strategy to address the economic impacts of inflation.
Mortgage rates are closely linked to yield on the 10-year Treasury bond. When this yield moves up or down, it can affect the cost of borrowing dramatically. Following the Fed’s recent cuts, futures markets indicated a nearly 90% probability of an additional quarter-point rate cut, according to the CME FedWatch Tool. This is a powerful expression of market expectations about where future monetary policy is going and what that means for American consumers and businesses.
Even after these reductions, the Ave Credit Card Interest Rate is still 19.8% according to Bankrate. Since July, this figure has decreased by nearly a half a percentage point. This drop happened right before the Fed began telegraphing at every turn that it was preparing to cut rates. More importantly, let’s focus on the fact that this new rate has hardly moved an inch since late 2022. Highest since 2001 Last August, it officially touched a high of 20.79%.
Fed Chair Jerome Powell emphasized during a recent briefing that the latest rate cuts aim to bolster the struggling labor market. He expressed caution regarding future rate reductions, stating, “There’s no risk-free path for policy as we navigate this tension between our employment and inflation goals.”
What these cuts will mean for consumer borrowing costs is hard to say. Julia Fonseca, a financial analyst, noted that “mortgage rates will be largely unchanged because the cut was priced in before the meeting.” There are important ways the Fed’s actions can affect how markets view the overall economy. That doesn’t mean consumers will receive cheaper rates.
Analysts highlight that long-term borrowing costs depend more on expectations for interest rates in the future rather than current rates. Preston Caldwell, another financial expert, pointed out that “for consumers to see meaningful relief in terms of borrowing rates, the Fed will have to cut by more than the market has heretofore baked in.” This statement from the SDOT chief summarizes the challenges inherent in forecasting what these rate cuts will mean for consumers’ bottom lines.
Further out, futures markets expect two more quarter-point cuts next year, according to the CME FedWatch Tool. Powell warned that the central bank is not done raising rates and will take a data-dependent approach to any future increases. “We’re well positioned to wait and see how the economy evolves,” he said.
