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Fed cuts interest rates for the first time in 11 years: What this means

Federal Reserve Chair Jerome Powell Holds News Conference on July 31Photo by Mark Wilson/Getty Images News/Getty ImagesImage: Federal Reserve Chair Jerome Powell Holds News Conference on July 31
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The central bank of the U.S. has cut interest rates for the first time in 11 years — a move to protect the nation’s economy. That means you might see some slightly better rates offered if you’re looking to borrow money.

The Federal Reserve’s decision to lower rates by a quarter of a percent to between 2% and 2.25% was no surprise. Earlier this year, the Fed suggested it wouldn’t raise rates in 2019 after more than a decade of steady increases, citing slower consumer spending and business investment along with global economic uncertainties.

While a rate cut like this can make it a better time to buy a car, refinance a mortgage or take out a personal loan, depending on the offer — there’s another side to that coin: If you’ve got a high-yield savings account, you may see your annual percentage yield, or APY, fall slightly, meaning your money will earn a bit less in interest. Read on to learn more.

Want to know more?

Why did the Fed cut interest rates?

Although the U.S. economy is doing OK, according to Fed Chair Jerome Powell, the Fed wanted to cut rates slightly as a precaution given what’s happening around the world — namely weakening growth among global economies and the ongoing trade dispute with China.

But the economy at home was a factor, too. The Fed is also concerned about inflation in the U.S. — the rate at which prices are rising. The Fed tries to keep inflation around 2% annually to keep the economy stimulated — but this year it’s slowed to 1.5%, and policymakers believe a rate cut could help boost inflation to a healthier level.

What could the rate cut mean for you?

If you’ve been shopping around for an auto loan, personal loan, or mortgage for a few weeks, you might be noticing that interest rates on some loans are lower now than those you saw a couple of weeks ago.

Any loans or lines of credit you currently have may or may not be impacted — it largely depends on whether you have a fixed or a variable APR. Now might be a good time to check your loan terms to get an idea of whether you’ll see any change.

At the same time, if you’ve got a high-yield savings account, it’s possible you could see your bank lower the APY on that account — meaning your money may earn less in interest payments than it did before.

If you want to keep up with what the Fed might plan for interest rates in the future, you can follow its meeting calendar and statement releases here.


About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer and editor and holds a bachelor’s… Read more.