The Fed’s big move
Many economists were waiting for the Fed’s interest rate cut in September. It was the first time the Fed lowered its benchmark interest rate since it began raising it in 2022. Back then, the Fed increased its rate to combat inflation. In September, the Fed signaled that its inflation-fighting efforts had largely worked when it cut the rate. The Fed also indicated that it would enact more rate cuts in the coming months.
The Fed’s rate isn’t directly tied to the rates lenders use when originating mortgage, auto and personal loans. But when the Fed increases its benchmark rate, lenders tend to boost theirs too. When the Fed increased its benchmark rate, mortgage lenders did the same with mortgage rates, making it more expensive to borrow money to buy a house.
The positives
The Fed’s rate cut, then, will have a positive impact on consumers considering buying a home or car. Interest rates on these loans have already fallen — and could continue to fall, especially if the Fed enacts additional rate cuts.
In fact, mortgage interest rates have already reacted to the Fed’s move, falling to an average of 6.08% on a 30-year fixed-rate loan as of Sept. 26, according to Freddie Mac. That’s down from an average of 6.18% four weeks prior and 6.89% a year ago.
As a result, the Fed’s interest rate cut is having a positive impact on consumers who need to borrow money to make big purchases, such as buying a home.
The negatives
There is a potential downside to the Fed’s move, though. The interest rates on savings accounts tend to fall when the Fed lowers its benchmark rate. This means that consumers won’t earn as much money on the dollars they’ve saved.
Interest rates on money market accounts and certificates of deposit tend to fall, too, after a Fed rate cut. These rate drops do tend to take several weeks after a Fed move occurs.
The Fed’s interest rate cut, then, could negatively impact you if you have been enjoying higher interest rates on your savings, as those rates might be dropping soon.
The overall impact
Overall, the Fed’s rate cut should provide a bit of financial relief to consumers, especially those looking to buy a home. Higher interest rates could cause homebuyers’ monthly mortgage payments to soar. When these rates fall, homebuyers can buy more home for less money because their monthly mortgage payments might be lower.
If you’re ready to buy a home, this is a good time to jump into the market. As interest rates fall, your home-buying dollars will stretch further.
