The Federal Reserve Board slashed interest rates three-quarters percent on Tuesday, January 22 in an apparent reaction to weakening economic conditions and turmoil in global financial markets.
The emergency action was the largest unscheduled interest rate cut in over 20 years. The move lowered the target on a key short-term interest rate from 4.25 percent to 3.5 percent.
The decision was made ahead of the Fed’s regularly scheduled meeting to take place the week of January 28. “The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth,” the Federal Open Market Committee said in a statement issued Tuesday, January 22.
Also in the statement, the Fed noted that “broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”
What does the rate cut mean to borrowers?
The Federal Reserve’s decision to cut the federal funds rate impacts consumer costs for credit cards, home equity lines of credit and auto loans.
The federal funds rate influences the prime rate, which in turn can influence short term interest rates, such the rates on adjustable rate mortgages tied to the prime rate, home equity lines of credit, auto loans and credit card interest rates. 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 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, borrowers can look for credit card interest rates, auto loans and even some home loans to drop.
To find out if the interest rate cut could affect your loan payment, call 1 800 555-Tree or visit www.LendingTree.com.