The Federal Reserve is expected reduce its benchmark interest rate from a 23-year high next month, affecting consumer debt, savings, auto loans and mortgages.

Experts currently predict three quarter-point reductions in September, November, and December, with the potential for deeper cuts, reported Fortune.

Fed Chair Jerome Powell indicated in his keynote speech at the Fed’s annual conference in Jackson Hole that it is time for the Fed to start lowering interest rates, emphasizing that the specifics of the rate cuts will be influenced by new data, future forecasts, and risk assessments.

Given Powell’s comments and recent economic trends, the central bank is anticipated to reduce its key rate by a quarter-point at next month’s meeting, with further cuts likely in the subsequent months.

Effect On Mortgages

Although the Federal Reserve’s benchmark rate doesn’t directly determine mortgage rates, it does influence them, with both typically moving in tandem, noted LendingTree senior economist Jacob Channel.

He added that mortgage rates have recently fallen in anticipation of the Fed’s expected rate cut, Fortune added.

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“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” Channel said.

Melissa Cohn, regional vice president at William Raveis Mortgage, agreed, emphasizing that the key factor is the signal the Fed is sending to the market, rather than the rate change itself.

Impact On Savers And Credit Card Debts

Greg McBride, chief credit analyst at Bankrate, advises savers to secure favorable yields now before the anticipated rate cuts start, Fortune added. “For those who might be looking at Certificates of Deposit or bonds — you want to jump on that now,” he said.

“Your credit card bill is not going to plunge the day after the next Fed meeting,” cautions LendingTree chief credit analyst Matt Schulz.

“Nobody should expect miracles,” the report read.

Nevertheless, as the benchmark rate falls, borrowers can eventually expect more favorable rates, especially since many are dealing with some of the highest credit card interest rates in decades.

WalletHub’s August Credit Card Landscape Report shows average rates of 23.18% for new offers and 21.51% for existing accounts.

Effect On Inflation & Job Market

Recent government reports show that consumer prices increased by just 2.9% in July compared to the previous year, marking the smallest rise in over three years, Fortune added.

However, recent employment data raises concerns: July’s hiring was significantly lower than anticipated, and the unemployment rate has climbed to 4.3%, the highest in three years, indicating economic weakness. On the other hand, strong retail sales have eased recession worries.

The Federal Reserve’s future rate cuts will partly depend on the developments in inflation and the job market over the coming weeks and months.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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