The Federal Reserve Board lowered interest rates a quarter percent on Tuesday, December 11, in an attempt to stimulate a softening economy.
The decision was the third rate cut in three months, including an aggressive .5 point cut in September and a .25 cut in October. The move today lowered the target on a key short-term interest rate from 4.5 percent to 4.25 percent.
“Incoming information suggests that economic growth is slowing... Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time," the Federal Open Market Committee said in a statement issued Tuesday, December 11.
Also in the statement, the Fed suggested that it would consider future rate cuts based on economic conditions. “The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth,” the statement read.
What does the rate cut mean to borrowers?
The Federal Reserve decision lowered the cost of borrowing for businesses. The federal funds rate, the rate that was lowered today, influences the prime rate, which in turn can influence short term interest rates. Variable-rate short term loans such as home equity lines of credit, adjustable rate mortgages tied to the prime rate, auto loans and credit card interest rates may all be affected by the rate cut. Fixed-rate loans, which are tied to long-term interest rates like the 10-year Treasury note yield, are less likely to be immediately affected by the Fed decision, but do tend to be indirectly impacted by the Fed’s action.
In summary, while the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. With today’s rate cut, look for credit card interest rates, auto loans and even some home loans to dip slightly.
To find out if the interest rate cut could affect your loan payment, call 1 800 555-Tree or visit www.LendingTree.com. For more information on the impact of the Fed’s action read the article 7 ways the Fed rate cut affects you.