The Federal Reserve Board lowered interest rates a quarter percent on Wednesday, October 31, in the second cut to the federal funds rate since August.
The decision lowered the target on a key short-term interest rate from 4.75 percent to 4.5 percent – a move predicted by many economists. This rate reduction comes on the heels of an aggressive half point rate cut by the Fed on September 18. Both the September 18 cut and today’s cut are seen as an attempt to prevent troubles in the housing and mortgage markets from negatively impacting the economy.
“Today’s action, combined with the policy action taken in September should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time,” the Federal Open Market Committee said in a statement issued Wednesday, October 31.
Also in the statement, the Fed suggested that it would now hold rates for the time being. “The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to 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, influences the prime rate, which in turn can influence short term interest rates. Expect variable-rate short term loans (such as home equity lines of credit) to fall. Adjustable rate mortgages (those tied to the prime rate), auto loans and credit card interest rates may also 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.
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, credit card interest rates, auto loans and even some home loans may 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.