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Why is the Fed Rate Cut Important to Me?

Why is the Fed Rate Cut Important to Me?

Recently, the Federal Reserve System (the Fed) announced an emergency rate cut in response to the coronavirus, COVID-19. This comes after three rate cuts throughout 2019.

Why is this important to you? Because the Fed is the central banking system of the United States of America and the decisions made by the Fed influence everything from inflation to interest rates, which sets the tone of our economic environment.

Every change the Fed declares affects the interest rates you encounter every day, such as credit card rates, loan rates and even savings rates. Even rates that aren’t directly set by the Fed are impacted by these changes. Increasing rates means the Fed thinks the economy is doing well and will handle higher borrowing costs. Decreasing the rates is meant to encourage people to borrow money, spend and invest their money; in turn boosting the economy.

Here’s what lowering the federal funds rate can mean for you:

  • If you are shopping for a home right now, this is encouraging news for you. The Fed rate isn’t directly tied to mortgage rates, but it does tend to influence them. Therefore, it’s a great time to purchase or refinance with a low rate and save money on the interest payments.
  • If you are a saver, the low interest rates aren’t great for you. Fear not, continuing to save is always great for your financial future.
  • If you have debt with a variable rate, such as a credit card, this is good news. Typically credit card rates are extremely high and a decrease in the rate can help you pay down your debt faster. Of course, this only applies if your card is a variable rate card.

Overall, if you are looking to borrow money for a purchase this is good news for you. This is also an excellent time to refinance your loan if you are locked into a higher rate. As rates continue to change be sure to consult your First United Bank or Spirit Mortgage team member to help you make the most of your money.