Here’s Where Consumer Rates Stand as Markets Anticipate Fed Cut
The Federal Reserve is expected to make its first interest rate cut on Wednesday after more than two years of tight monetary policy. The central bank’s target rate range currently stands at 5.25% to 5.5%.
Higher rates have been tough on borrowers, with the 30-year fixed mortgage rate rising to 6.12% the week of Sept. 13, according to MND. That’s up from 4.29% the week of March 11, 2022, just before the Fed launched its first hike. Home equity loans have also gotten more expensive, with rates rising to 8.49% last week, up from 5.96% in March 2022, according to Bankrate. Credit card interest rates have also jumped more than 400 basis points since the Fed began its rate hikes, reaching 20.78% last week, Bankrate found. A basis point is one-hundredth of a percent.
The Fed’s tight policy has, however, provided a glimmer of hope for savers. The annual percentage yield on a five-year certificate of deposit jumped to 2.87%, up from 0.5% in March 2022, according to Haver. Money market fund yields also jumped, to 0.46% last week, up from 0.08% paid just before the Fed began tightening policy in March 2022, Haver found.
–Darla Mercado, Nick Wells
Uncertainty over possible size of Fed rate cut looms ahead of decision
In the hours before the Federal Reserve’s rate decision, investors remain divided over the depth of rate cuts policymakers are planning.
Fed funds futures suggest a 55% chance that central bank officials will cut rates by 50 basis points, according to the CME’s FedWatch tool. They also imply a 45% chance that the Fed will cut rates by 25 basis points. Currently, the Fed’s target range for rates is 5.25% to 5.50%. A basis point is one-hundredth of a percent.
Investors should be careful what they wish for, according to Aditya Bhave, senior U.S. economist at Bank of America. The firm expects a 25 basis point cut on Wednesday, but warns that a 50 basis point cut could ultimately be a worrying sign.
“Risk assets may initially bounce back on this dovish surprise,” Bhave wrote Wednesday. “But we caution investors that cutting rates by 50 bps means the Fed is less confident about a soft landing.”
— Darla Mercado
