Interest Rates Just Got a Boost: What It Means for Your Wallet
The Federal Reserve has made its move, slashing interest rates by 25 basis points to a range of 4.50% to 4.75%. This marks the second rate cut in as many months, following a 50-basis-point reduction in September. The result? Borrowing money just got a bit cheaper.
A Brief History of Rate Cuts
The Fed’s rate-cutting spree began in September, aimed at stimulating the economy as inflation cools and the job market softens. Prior to this, the Fed spent two years raising rates to curb inflation, which peaked at 9.1% in June 2022. Since then, inflation has plummeted to 2.4%, bringing it closer to the Fed’s 2% target.
What’s Next?
Fed Chair Jerome Powell hinted that another 25-basis-point cut could be on the horizon before 2025 if current economic trends hold steady. The Fed expects the benchmark rate to dip to 3.4% by the end of 2025, which would further increase savings on borrowing costs.
How Rate Cuts Impact Your Monthly Borrowing Costs
Here’s a breakdown of how the recent rate cuts could affect your monthly borrowing costs:
- For borrowers with a $5,000 balance: You could save around $10-$15 per month.
- For a new $10,000, 3-year personal loan: Your monthly payments might decrease by $15-$20.
- On a new $35,000, 5-year auto loan: You could see a reduction of $20-$30 per month.
- On a $50,000 HELOC: You might see a slight rate reduction, although the savings will depend on your loan size, credit score, and current mortgage market conditions.
Takeaway: Borrowers Rejoice, But Be Cautious
While borrowers with resetting rates may still face higher rates than before, the recent rate cuts offer a welcome respite. However, it’s essential to consider your individual circumstances, including loan size, credit score, and current market conditions, to fully understand the impact on your wallet.
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