Alert – Fed slashes interest rates by the biggest amount in 16 YEARS – here’s what it means for you

The Federal Reserve has cut interest rates by 50 basis points.

This is the first time it has cut rates by this much at one time since the midst of the financial crisis in late 2008.

It is an aggressive start to the central bank’s first easing campaign since the early days of the Covid-19 pandemic in 2020.

This brings benchmark borrowing costs down to between 4.75 percent and 5 percent.

‘The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,’ the post-meeting statement said.

11 of the 12 Fed policymakers backed the cut.

Fed Chair Jerome Powell has spoken at a press conference following the decision announcement.

‘We concluded that this was the right thing for the economy and the people we serve,’ he said of the central bank’s decision to cut interest rates by half a percentage point.

‘Our patient approach over the past year has paid dividends,’ he told reporters.

‘Inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward 2 percent.

In its policy statement, the Fed said the decision reflected that the central bank ‘judges that the risks to achieving its employment and inflation goals are roughly in balance.’

‘With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,’ Greg McBride, analyst at Bankrate, told AP News.

‘It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.’

Rate cuts and the avoidance of a recession will lead to lower auto loan rates, he said, at least for borrowers with strong credit profiles.

For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.

Robert Frick, corporate economist for Navy Federal Credit Union, said that while he thinks a rate cut will work its way into auto loans, it probably won’t happen immediately and people with higher credit scores will likely benefit first.

Loans for new vehicles right now are averaging 7.1 percent, with used vehicle loans at a much higher 11.3 percent, according to Edmunds.com.

High prices and rates have also led to more delinquent payments and defaults on auto loans, especially among people with lower credit scores. As a result, Frick told AP News, many lenders will probably try to keep rates high to cover potential losses.

‘Rates will be coming down, but we shouldn’t expect them to come down quickly overall,’ he said.

Frick suggests waiting for additional Fed rate cuts to come through if possible, especially if you’re buying a used vehicle.

The Fed’s benchmark interest rate does not directly affect mortgage rates, but home loan costs tend to dip alongside rate cuts.

Mortgage rates have already fallen to their lowest level since February 2023.

The average 30-year fixed rate mortgage is now 6.20 percent, as of latest Freddie Mac data from September 12.

The rate cut should mean mortgage rates continue their downward trajectory, providing a boost for those looking to refinance or buy a home.

Experts hope this would begin to get the stagnant housing market moving.

The ‘Oracle of Wall Street’ Meredith Whitney told DailyMail.com earlier this year that rates need to drop below 6 percent to kickstart the frozen housing market.

Elevated mortgage rates have been a deterrent for homebuyers for the last several years, while sellers ‘locked’ into cheaper, pandemic-era loans have been reluctant to sell.

A half-point rate cut should mean financing costs go down, creating a flood of homes for sale, and bringing property prices down, CNN reported.

Workplace retirement accounts tend to be invested in major indices including the S&P 500 and the Dow Jones Industrial Average, so are impacted by major stock market moves.

Markets jumped following the announcement that the Fed had cut interest rates by 50 basis points, in good news for Americans’ 401(K)s.

Americans holding money in high-yield savings accounts, however, are likely to be the most disappointed by the interest rate cut.

The competitive rates offered by some banks are likely to come down in line with the Fed’s move, but by how much and how quickly will vary depending on the provider.

‘As attractive as yields on savings instruments have recently been, it’s wise not to hold too much in cash because these are short-term instruments and their yields are ephemeral,’ Christine Benz, director of personal finance at Morningstar, told AP News. ‘The really great yields that we’ve had recently may go lower.’

If you don’t have a need for cash right away, you can continue to lock in what are ‘still pretty decent yields on offer,’ she added.

The Fed has held interest rates at a 23-year high since July 2023, which has made borrowing money expensive and piled pressure on American households.

The cut will have an impact on many aspects of your financial life – but consumers will have to wait longer to feel relief in some areas than in others.

Rates for credit card and personal loans should finally decrease, providing some respite for borrowers.

The average APR offered with a new credit card is currently 24.92 percent, according to LendingTree.

The decrease in rates is welcome respite for consumers who have relied more heavily on credit cards to cope with elevated prices after several years of inflation.

Total credit card balances in the US have surpassed $1 trillion.

But how much credit card lenders will cut rates by is unknown.

APRs are set by banks, so any decrease will not be instant and will depend on the bank and the type of card.

The stock market has jumped following the Fed’s announcement that it cut interest rates by an aggressive half percentage-point.

The move marked the end of a rate-hiking cycle for the central bank which began in 2022.

The S&P 500 rose 0.8 percent, the Dow Jones added 0.9 percent, while the Nasdaq Composite jumped by around 1 percent.

Stocks ticking up is good news for Americans’ 401(K) retirement accounts, which tend to be invested in the major indices.

The Fed is grappling with mixed economic data as it makes its rate cut decision.

Inflation is heading in the right direction toward the central bank’s 2 percent target.

Latest data from the Bureau of Labor Statistics revealed consumer prices were up 2.5 percent from a year earlier in August.

This is down from a 2.9 percent annual rate in July – and is the lowest rate of yearly price growth since February 2021.

But recent reports on employment and manufacturing have revealed some signs of softening, which have been cause for concern for some economists.

Markets were badly shaken by a weaker-than-expected jobs report in July, which saw unemployment increase to the highest level since October 2021.

Fed watchers are undecided as to how big of a cut the central bank could make to interest rates at the close of its latest meeting Wednesday.

Typically, markets have a general idea as to what will happen at the meeting, but that is not the case this time.

‘I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,’ Mark Zandi, chief economist at Moody’s Analytics, told CNBC.

‘They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.’

There is reportedly an unusual division among Fed policymakers who have typically voted the same way on interest rate decisions.

‘My guess is they’re split,’ former Dallas Fed President Robert Kaplan told the outlet earlier this week.

‘There’ll be some around the table who feel as I do, that they’re a little bit late, and they’d like to get on their front foot and would prefer not to spend the fall chasing the economy.’

There will be others, he added, that want to be more careful and manage risk.

Investors are waiting anxiously to see whether the Fed cuts by a cautious quarter percentage point, or a more bold half percentage point – a move it has not made in 16 years.

The Fed has not lowered interest rates at all since 2020.

And it has not lowered borrowing costs by a half percentage point at one time since the midst of the financial crisis in late 2008.

As of writing, investors were predicting a 57 percent chance of a 50 basis point cut, and a 43 percent chance of a 25 basis point cut, according to the CME FedWatch Tool.

An interest rate cut of any size will have an impact on Americans’ finances – from credit cards and savings accounts to 401(K)s and mortgages.

The Fed has held benchmark borrowing costs at a 23-year high between 5.25 percent and 5.5 percent since July 2023, following an aggressive rate hiking campaign to curb inflation.