Stop us if you’ve heard this one before: The Federal Reserve has cut interest rates once again. If you’ve heard this before, it’s because it’s the third time in 2019 that the Fed has made a rate cut, which is a tactic it often enacts when the economy needs a pickup. It cut rates this time by a quarter point.
Aside from an attempt to offset a sluggish economy, however, many Americans wonder just what a rate cut means when it does happen — and in most cases, the news is both good and bad. Let’s take a look at what this rate cut might mean for you.
The Good
Let’s start with the good, and any time the Fed makes a rate cut, there is certainly some good as it pertains to interest rates. Lower interest rates means more affordable loans, which can certainly pay off when it comes to long-term loans like auto and home. Even just a quarter of a percentage of savings on interest rates can spell the difference between hundreds or even thousands of dollars in overall savings. To fully take advantage of a lower interest rate, however, it’s still imperative for consumers to have good credit. Seeing as how a good credit score is somewhat of the lifeblood to a consumer’s financial future, only high qualifying individuals are going to benefit.
Loans aren’t the only thing that consumers can save money on — credit card rates can also come down, especially those that have a variable interest rate. A quarter of a percentage difference isn’t likely to play a huge role in the grand scheme of things, but it certainly helps.
The Bad
Though loans may become more affordable via lesser interest rates, the catch 22 is that returns on savings and other investments are also less favorable. In other words, while you may be paying less on long-term loans and credit card balances, you’ll be earning less via interest on savings accounts.
Furthermore, being that a Fed rate cut is often the sign of a slowing economy, many consumers may not even get the opportunity to take advantage of a lesser-interest loan. That’s because in a down economy, lenders are far less likely to approve loans or lines of credit than what they are in a booming economy. Consumers with poor credit, who arguably could benefit the most from a lower interest rate, are also likely to not be able to take advantage of lower long-term interest rates because of an increased risk of loan rejection.
And now the last “bad” factor involved in a Fed rate cut — the seemingly shifting economy. The Fed normally only cuts rates to keep pace with the economy. Being that this is the third Fed rate cut in 2019 alone, you can get an idea of where it perceives the economy to be heading throughout the rest of 2019 and into the future.
More to Come?
Another thing that’s interesting about this Fed cut is that there weren’t believed to be any more on the docket this year. Yet, here we are again — and another cut has indeed, occurred. Will this be the last one of 2019? It’s almost a certainty, but stranger things have happened. Regardless, if you’re in the market for a new home, car loan or thinking of taking out a student loan, now’s the time to act as the interest rate will only likely be lower if we happen to drop into an all-out economic recession. And though the Fed cuts this year seem to indicate that we might be closer to one, there’s no reason to push the panic button just yet. Jobs are still being created, and the stock market is still in good overall shape.
