MEMPHIS, Tenn. – A key decision by the Federal Reserve could soon lower borrowing costs for Americans carrying debt.
Economists widely predict the nation’s central bank will cut interest rates at its meeting this week. This move comes as the economy navigates a complex landscape of persistent inflation and a softening job market. The change directly impacts the interest rates on many types of loans,potentially offering relief to consumers and businesses alike.
What are interest rates?
The Federal reserve, often called “the Fed,” controls the federal funds rate – a key benchmark that influences interest rates throughout the economy. When the Fed lowers this rate, it generally becomes cheaper to borrow money.
How does inflation influence interest rates?
The Fed uses interest rates as a primary tool to manage inflation. Lowering rates encourages borrowing and spending, stimulating economic activity. conversely, raising rates discourages borrowing, helping to cool down an overheating economy and curb inflation.
During the Covid-19 pandemic, the Fed slashed rates to near zero to bolster the economy. However, this contributed to a surge in inflation by 2022. The Fed responded with aggressive rate hikes, increasing rates by approximately five percent between 2022 and 2023 to regain control of rising prices. since than, rates have been lowered by about one percent.
What’s next for the economy?
Currently,inflation remains above the levels economists had anticipated,while the job market is showing signs of weakness. Economists believe a rate cut is necessary to inject cash into the economy and support growth.
How will a rate cut impact my debt?
Consumers with variable-rate loans, such as some credit cards and adjustable-rate mortgages, will likely see a decrease in their monthly interest payments. Those with fixed-rate loans may need to refinance to take advantage of lower rates. New loans and other debt will become less expensive to finance.
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