Okay so the fed just cut interests rates by half a point. Can someone explain how this might affect my day to day life? How might it be different if it were, for example, 0.75? Or 2.0?
In: Economics
The fed is like a bank for banks. The cheaper banks can borrow money, the cheaper they can loan money out to other people. If you planned on taking a loan for something it’s possible you can get a better deal here in the coming months. It also makes it more affordable for companies to finance things like expansion or new business ventures.
The downside is that bank account interest rates will probably drop and cheap credit can often result in higher prices as money becomes cheaper to borrow.
Within the next 3-6 months the effect will be absorbed throughout the economy. Some things, like loans to the best companies, will change soon, and then home mortgage rates, and eventually costs for other things.
This rate cut is a signal that inflation is more in control than in the past but leaves room for adjustment in case it isn’t. These rate changes are largely reactive to the most recent data available so a cut of 2% would mean we’re nearing a recession or in the midst of a heavy slowdown. Essentially your life would already be changing if the Fed made a really big change.
The biggest effect it may have, unless you are buying a home, is how it should help the overall stock market, which is largely governed by sentiment. If you have money in IRA’s, Mutual Funds, etc. you should get positive results from it.
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