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The highest interest rates in a generation may finally ease Wednesday, as the Federal Reserve meets to consider the first rate cut in four years, potentially ushering in a new era of lower borrowing costs for anyone seeking a new home, car or credit card.
In recent comments, Fed Chair Jerome Powell signaled that “the time has come” for an interest rate cut at the group’s September meeting, which concludes today. The looming question is, how big of a cut? Forecasts are split between a reduction of one quarter of a percent and one half to the benchmark federal funds rate, which stands at a 23-year high.
The mother of all interest rates is actually a range, and it has sat at 5.25% to 5.5% since July 2023, following a campaign of rate hikes to combat surging inflation. In response, rates on mortgages, car loans and credit cards have reached historic highs.
The two-day Fed meeting ends at 2 p.m. with a rate announcement. Powell will hold a press conference at 2:30 p.m. The financial world will be watching.
How high is inflation?
Inflation, a sustained increase in prices throughout the economy, has been well above the 10-year median of 2.1% for more than three years. The Fed policymakers say they prefer a low and stable inflation rate, so they can “make sound decisions regarding saving, borrowing and investment.”
Inflation has fallen significantly in the past two years but remains elevated – largely because of housing costs. In August, the annual inflation rate as measured by the consumer price index fell to 2.5%, from 2.9% in July. The reading was the lowest since March 2021, a year before the Fed started pushing up interest rates.
What can borrowers expect?
If the Fed cuts interest rates today, borrowers will likely see interest rates ease off their peaks on things like credit cards and auto loans, but they shouldn’t expect any great immediate relief, analysts said.
September’s average rate for new credit cards was 24.92%, unchanged from August and the highest since 2019, when LendingTree began tracking the data.
“While they’ll almost certainly fall from record highs in coming months, no one should expect dramatically reduced credit card bills anytime soon,” said Matt Schulz, LendingTree credit analyst. “Barring the Fed unexpectedly stomping on the gas pedal when it comes to lowering rates, credit card APRs are still going to be high for the foreseeable future.”
The same goes for rates on auto loans and other types of debt, he said.
