Financial Moves to Consider Before the Fed Cuts Rates – Top Stories (Trending Perfect)

The US Federal Reserve is likely to start cutting interest rates as early as next month, based on the latest inflation data.

“We think the time is coming,” Federal Reserve Chairman Jerome Powell said at a news conference after the last Federal Open Market Committee meeting in July.

For Americans struggling to keep up with rising interest rates, a potential rate cut in September could bring some welcome relief — especially with the right planning.

“If you’re a consumer, this is a good time to ask yourself: What does my spending look like? Where might my money grow and what options do I have?” said Leslie Tyne, a debt relief attorney at Tyne Law Firm in New York and author of Life and Debt.

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Federal Reserve officials have indicated they expect to cut the benchmark interest rate once in 2024 and four times in 2025.

That could push the benchmark federal funds rate from its current range of 5.25% to 5.50% to below 4% by the end of next year, according to some experts.

The federal funds rate is the rate at which banks borrow and lend to each other overnight. While it’s not the rate consumers pay, the Fed’s moves still affect the rates they see every day on things like private student loans and credit cards.

Here are five ways to organize your finances for the coming months:

Since interest rates have been applied to online savings accounts and money market accounts, CD rates are expected to fall, and experts say now is a good time to get some of the highest returns in decades.

Although these rates will fall once the central bank cuts its benchmark interest rate, for the typical saver whose average income is about 10% of its value, it will fall. $8000 In a checking or savings account you can earn an extra amount. $200 According to a recent survey by Santander in June, most Americans keep their savings in traditional accounts, as FDIC data now shows. Pay 0.45%on average.

“Now is the time to hold onto the most competitive CD yields at a level well above the inflation target,” said Greg McBride, chief financial analyst at Bankrate.com. “There is no point in waiting for better returns later.”

Currently, the highest-yield one-year CD pays more than 5.3%, according to Bankrate, which is the same as a high-yield savings account.

As interest rates are lowered, the prime rate also falls, and interest rates on variable-rate debt—particularly You're likely to follow these credit cards, which will lower your monthly payments. But even then, the annual interest rates will only ease from their very high levels.

For example, the average interest rate on a new credit card today is nearly 25%, according to LendingTree DataAt that rate, if you paid $250 a month on a card with a $5,000 balance, it would cost you more than $1,500 in interest and take 27 months to pay off.

If the central bank cuts interest rates by a quarter of a percentage point, you’ll save $21 and be able to pay off the balance a month early. “It’s nothing, but it’s a lot less than you’d save with a 0% balance transfer credit card,” said Matt Schultz, senior credit analyst at LendingTree.

Instead of waiting for a small adjustment in the coming months, borrowers can now switch to a zero-interest balance transfer credit card or consolidate high-interest credit cards and pay them off with a personal loan, Tain said.

If you're planning a major purchase, such as a home or car, it may be better to wait, since lower interest rates may reduce the cost of financing in the future.

“Timing your purchase to coincide with low interest rates can save money over the life of the loan,” said Tain.

Although mortgage rates are fixed and linked to Treasury yields, Interest rates have already started to come down from their recent highs, largely due to the prospect of a Federal Reserve-induced economic slowdown. The average 30-year fixed mortgage rate is now around 6.5%, according to CNBC. Freddie Mac.

Compared to a high of 7.22% last May, today’s lower interest rate on a $350,000 loan would save $171 a month, or $2,052 a year and $61,560 over the life of the loan, according to calculations by Jacob Channell, senior economist at LendingTree.

However, McBride said lower mortgage rates could also boost demand for homes, which would push prices higher. “If lower mortgage rates lead to higher prices, that would offset the affordability benefit for potential buyers,” he said.

Exactly what will happen in the housing market is “still unclear” depending on how low mortgage rates are in the second half of the year and the level of supply, Channel said.

“Timing the market is practically impossible,” he said.

For those with existing debt, there may be more options to refinance once rates drop.

For example, private student loans tend to have a variable rate tied to the prime rate, Treasury bonds, or another rate index, which means that once the Fed starts cutting interest rates, interest rates on private student loans will also fall.

When it comes to For example, inflation has certainly hit financing costs – and vehicle prices – for new car loans. According to Bank Reit, the average interest rate on a five-year new car loan is now about 8%.