This week, the Fed dropped interest rates by a quarter point and indicated that there may be two more rate cuts by the end of the year. So what does that mean for consumers like you and me? Rajesh Narayanan, a professor of finance at LSU, says if you’re hoping that the rate cut will mean a lower rate on your mortgage, think again.
“Mortgage rates don’t track the short-term rate, they track the longer-term treasury, 10-year rate. That rate’s already adjusted in anticipation of the rate cut,” Narayanan explained.
Narayanan says the interest rates that the Fed sets affect how banks borrow from one another and do not have an immediate direct impact on the interest rates that consumers pay. As such, he says the rate cut will also have no immediate impact on other types of interest.
“We’re not seeing a whole lot of change in longer-term auto lending or even credit card rates. Those rates are fairly competitive, and they’re determined more so by credit risk,” Narayanan said.
Narayanan says the Fed issued the rate cut in response to weakness in the job market. But he says it’s a tough balancing act – while unemployment is up, it becomes a different situation when inflation also rises.
“We are seeing prices, especially in tariff-impacted sectors, slowly rise up. We are definitely seeing trends in consumer spending slow down,” Narayanan noted.
