Here you can see the development of consumer interest rates as the markets expect a rate cut by the Fed
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 interest rate range is currently 5.25 to 5.5 percent.
Higher rates have hit borrowers hard. According to MND, the rate on the 30-year fixed-rate mortgage rose to 6.12% during the week of September 13. That’s up from 4.29% during the week of March 11, 2022 – just before the Fed initiated its first rate hike. Home equity loans have also become more expensive. According to Bankrate, rates rose to 8.49% last week, up from 5.96% in March 2022. Credit card rates have also risen by more than 400 basis points since the Fed began raising rates, reaching 20.78% last week, Bankrate found. One basis point is one-hundredth of a percent.
However, the Fed’s tightening policy has also brought a bright spot for savers. According to Haver, the annual percentage yield on a five-year certificate of deposit has risen to 2.87% from 0.5% in March 2022. Money market fund yields have also jumped, reaching 0.46% last week, compared to 0.08% paid just before the Fed’s tightening policy began in March 2022, Haver noted.
–Darla Mercado, Nick Wells
Uncertainty about the possible extent of a rate cut by the Fed prevails ahead of the decision
In the hours before the US Federal Reserve’s interest rate decision, investors remain divided over the extent of the interest rate cuts.
Fed funds futures trading suggests there is a 55 percent chance the central bank will cut rates by 50 basis points, according to CME FedWatch. They also imply a 45 percent chance the Fed will cut rates by 25 basis points. Currently, the Fed’s target range is 5.25 to 5.5 percent. One basis point is equal to one hundredth of a percent.
Investors should be careful what they wish for, says Aditya Bhave, chief U.S. economist at Bank of America. The firm expects a 25 basis point cut on Wednesday and warns that a 50 basis point cut could ultimately be a worrying sign.
“Risk assets may initially rally on the back of this surprisingly dovish monetary policy,” Bhave wrote on Wednesday. “However, we would caution investors that the 50 basis point cut means the Fed is less confident of achieving a soft landing.”
–Darla Mercado
