Federal Reserve officials on Wednesday cut the federal funds rate, or the rate at which banks borrow from each other, by 25 basis points, or 0.25%.
The central bank’s rate-setting committee, the Federal Open Market Committee (FOMC), announced on Wednesday that the target range for the federal funds rate was 4.25% to 4.5%.
Federal Reserve Chairman Jerome Powell said at a press conference after the decision that this month’s rate cut was a “closer call” than previous cuts, but ultimately “the right call.” He said the FOMC is balancing two risks: disrupting economic activity in the labor market and reducing progress on inflation.
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The rate cut follows two previous cuts, one by 50 basis points in September and another by 25 basis points in November. The September adjustment was the first time the FOMC cut rates in four years.
Federal Reserve Chairman Jerome Powell. Photographer: Yuki Iwamura/Bloomberg via Getty Images
Future interest rate cuts are not certain. “Given the scope and timing of further adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks,” the FOMC said in a statement.
Dana Menard, CFP, founder and lead financial planner at Twin Cities Wealth Strategies, told CNET that these cuts will affect shorter-term CDs and savings accounts, which “will be reduced by the same amount as long-term CDs and rates.” “.
Will the interest rate cut affect mortgage rates?
The lower federal funds rate fluctuates to reduce borrowing costs for consumer loans such as credit cards and personal loans. The purpose of exchange rate regulation is to keep prices stable and respond to the labor market.
Melissa Cohn, a regional vice president at William Raveis Mortgage and a 40-year veteran of the mortgage industry, says the 0.25% rate cut “will have no impact on mortgage rates.” On Wednesday, rates were 7.13% for a 30-year fixed mortgage.
Kon said entrepreneur “mortgage rates are based on data, and if you look at the data, it doesn’t support very low interest rates,” it said in an emailed statement.
Rates hovering around 7% are “kind of the new normal,” he said.
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Calixto Garcia-Velez, president and CEO of BanescoUSA in Miami, told Bankrate that 30-year mortgage rates are tied to 10-year Treasuries, “and long-term Treasuries are rising,” so “home loan rates are not falling as much as people expect.”