It’s the first time in four years that the Federal Reserve has made a move to cut interest rates.
The Fed cut its benchmark interest rate by an unusually large half point on Wednesday. High interest rates for the last two years have helped tame inflation but it’s also had some negative impacts on American consumer finances.
Borrowing money has been painfully expensive for American consumers like Marcella Eisenhauer.
“I’m a single mom to a 5-year-old. So, this economy right now is really hard to eat, to pay bills, to be able to drive,” Eisenhauer said.
High interest rates have also impacted Eisenhauer’s quality of life. She says she often has to budget to be able to afford her monthly car payment.
“It’s not extravagant, it’s not luxury, it’s a basic model car, and it’s $600 a month for me to be able to just travel and get my kid back and get my kid back and forth to school.”
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Rate cuts by the Federal Reserve will over time lower borrowing costs and support more spending. That impacts things like your mortgage, auto loan, credit cards, and private loans.
Bert Costa, a certified financial planner, said while the rate cut is good news for borrowers, it won’t have a life-changing impact for the majority of consumers.
“First time since COVID, first time since March of 2020, that we’ve seen a rate cut. The average consumer isn’t going to see any immediate benefit from this,” Costa said. “You know, if you have credit card debt that has an interest rate assigned to it, it takes two or three cycles for that to kick into where you see a difference on the interest rate you paying on credit cards. One area consumers might benefit from is in the event that they have a home mortgage that’s maybe seven and a quarter or more, it might be a time to look into refinancing.”
Mortgage rates are down to 6.2% and could trail even lower after Wednesday’s rate cut.
Refinancing applications jumped 24% from last week—which is a staggering 127% higher than the same time last year, according to Realtor.com.