The Federal Reserve made a significant move in its September 2024 meeting by cutting interest rates by 50 basis points, bringing the federal funds rate down from the 5.25%-5.50% range to 4.75%-5.00%. This marks the Fed’s first rate cut since the COVID-19 crisis, signaling a shift in focus from controlling inflation to supporting economic growth, as concerns about the labor market and employment risks grow.
Here’s an updated breakdown of how this decision impacts key areas:
Savings Accounts and CD Rates
High-yield savings accounts and short-term CDs that follow the Fed’s rate closely might see a gradual decline in interest rates. While many banks are still offering around 5% for savings accounts, expect rates to begin dropping soon. Savers should consider locking in higher rates through longer-term CDs or CD ladders if they want to avoid potential losses in yield as rates decline over time.
Mortgage Rates
While the Fed’s rate cut could lead to some easing of mortgage rates, the decline may not be immediate. Mortgage rates have already fallen from their 2023 peak, and while this cut is expected to provide some relief, experts predict only gradual reductions in 30-year fixed mortgage rates. If the Fed continues to cut rates, mortgage rates could fall closer to 5.5% by next year, offering an opportunity for refinancing.
Credit Card Interest Rates
For those carrying credit card debt, the 50-basis-point cut should bring some relief as rates drop over the next few billing cycles. However, with the average credit card rate hovering above 21%, the reduction may feel modest. Borrowers should still focus on paying down debt and exploring balance transfer options to take advantage of 0% introductory rates.