Here’s where consumer rates stand as markets anticipate a cut from the Fed
The Federal Reserve is expected to make its first cut to interest rates on Wednesday after more than two years of tight monetary policy. The central bank’s target rate range currently sits at 5.25% to 5.5%.
Higher rates have been tough on borrowers, with the rate on the 30-year fixed mortgage rising to 6.12% as of the week of Sept. 13, according to MND. That’s up from 4.29% during the week of March 11, 2022 – just prior to the Fed kicking off its first hike. Home equity loans have also become more expensive, with rates rising to 8.49% as of last week, compared to 5.96% back in March 2022, according to Bankrate. Credit card interest rates have also jumped more than 400 basis points since the Fed started its rate increases, rising to 20.78% as of last week, Bankrate found. One basis point is equal to one one-hundredth of one percent.
The Fed’s tight policy has provided a silver lining to savers, however. The annual percentage yield on a five-year certificate of deposit has jumped to 2.87%, up from 0.5% in March 2022, according to Haver. Yields on money market funds have also jumped, sitting at 0.46% last week, versus the 0.08% paid just before the Fed began tightening policy in March 2022, Haver found.
–Darla Mercado, Nick Wells
Uncertainty around the possible size of Fed rate cut swirls ahead of the decision
In the hours leading to the Federal Reserve’s rate decision, investors remain split on the extent to which policymakers will cut rates.
Fed funds futures trading suggests a 55% likelihood that central bank officials will dial back rates by 50 basis points, according to CME FedWatch. They also imply a 45% probability of the Fed lowering rates by 25 basis points. Currently, the Fed’s target rate range is 5.25% to 5.5%. One basis point is equal to one one-hundredth of a percent.
Investors should watch what they wish for, according to Aditya Bhave, senior U.S. economist at Bank of America. The firm anticipates a 25 basis point cut on Wednesday, warning that a 50 basis point cut could ultimately be a worrisome sign.
“Risk assets might initially rally on the back of this dovish surprise,” Bhave wrote Wednesday. “But we’d caution investors that the act of cutting by 50bp means the Fed is less confident about a soft landing.”
–Darla Mercado
