This is what consumer interest rates will look like when the market expects the Fed to cut rates
The Federal Reserve is expected to cut interest rates for the first time on Wednesday after more than two years of tightening monetary policy. The current target interest rate range of the central bank is 5.25% to 5.50%.
Rising interest rates have been a problem for borrowers, with the 30-year fixed mortgage rate rising to 6.12% as of the week of September 13, according to Daily Mortgage News. This figure is higher than the 4.29% in the week of March 11, 2022, before the Federal Reserve began to raise interest rates for the first time.
Home equity loans have also become more expensive, with interest rates rising to 8.49% as of last week, compared with 5.96% in March 2022, according to Bankrate. Bankrate found that credit card interest rates have also increased by more than 400 basis points since the Fed began raising interest rates, rising to 20.78% as of last week. One basis point is equal to one hundredth of one percent.
However, the Fed’s tightening policy offers a glimmer of hope for savers. Haval said the annual interest rate on five-year certificates of deposit has jumped to 2.87% from 0.5% in March 2022. Hafer found that money market fund yields also rose sharply, to 0.46% last week, compared with 0.08% before the Fed began tightening policy in March 2022.
— Darla Mercado, Nick Wells
Uncertainty grows over the extent of the Fed’s possible rate cuts ahead of its decision
In the hours leading up to the Federal Reserve’s interest rate decision, investors remained divided over how much policymakers would cut interest rates.
There is a 55% chance that central bank officials will cut interest rates by 50 basis points, according to trading in federal funds futures. CME Group Fed Watch Tool. They also mean there is a 45% chance that the Fed will cut interest rates by 25 basis points. Currently, the Fed’s target interest rate range is 5.25% to 5.50%. One basis point is equal to one hundredth.
Aditya Bhave, senior U.S. economist at Bank of America, said investors should focus on their own aspirations. The firm expects a 25 basis point rate cut on Wednesday and warned that a 50 basis point cut could ultimately be a worrying sign.
“Risk assets are likely to rise initially on the back of this dovish surprise,” Barfe wrote on Wednesday. “But we would caution investors that a 50 basis point rate cut means the Fed is less confident of a soft landing.”
— Dara Mercado
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