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Fed cuts rates to hedge against coronavirus concerns: What this means for you

Federal Reserve Board Chairman Jerome Powell testifying in a February hearingSarah Silbiger/Getty Images News/Getty ImagesImage: Federal Reserve Board Chairman Jerome Powell testifying in a February hearing
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The Federal Reserve is trying to protect the economy as the coronavirus spreads worldwide. In a unanimous decision, the Fed voted to cut the federal funds rate by half a percentage point — its biggest single cut since the 2008 financial crisis.

It was also the Fed’s first emergency rate change since 2008. The agency took action on March 3, two weeks before its next regularly scheduled meeting.

The latest cut — to a rate between 1% and 1.25% — follows three rate cuts in 2019, after which the Fed was expected to hold rates steady for a while and monitor the economy.

ndfedratecorona2Image: ndfedratecorona2

This latest rate cut may mean lower rates ahead for home or vehicle purchases, or if you plan to take out a personal loan or refinance a mortgage. On the other hand, if you’ve got a high-yield savings account, you could see the interest rate fall a bit more than you already have.

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Wait — didn’t the Fed say it was done cutting rates?

You might remember a series of Fed rate cuts last year in response to global economic uncertainty around things like the U.S.-China trade dispute. After these cuts, the Fed adopted a “wait-and-see” approach, and seemed reluctant to cut rates further following its last meeting in late January.

This gave the agency space to act as needed in an emergency situation. And they did just that. According to the Wall Street Journal, the agency met by videoconference Monday to take a vote rather than wait until the next scheduled meeting.

By taking action between planned meetings, the Fed has underscored just how seriously it was taking the coronavirus threat to the global economy. Stock markets have plummeted from their previous highs, and there are broader concerns about how the spread of the virus might slow travel and tourism. The Fed presumably hopes that cutting rates will prompt spending and investment at home to counter global economic effects.

What could the latest rate cut mean for you?

The Fed rate cut won’t affect your day-to-day life unless you’re shopping for an auto loan, personal loan or mortgage. If you are, you might see lower interest rates on loans now than you did a few weeks ago.

And any loans or lines of credit you currently have might be affected. This mainly depends on whether you have a fixed or a variable APR. So now is a good time to check your terms to get an idea of whether you’ll see any changes. It could also potentially be a good time to refinance a longer-term loan like a mortgage.

At the same time, if you’ve got a high-yield savings account, you might see lower interest rates on that account.

You can keep up with what the Fed might be planning for interest rates by following 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.