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· Ancient Gaseous Emanation
57,902 Posts
Discussion Starter · #1 ·
18 September 2019

The U.S. Federal Reserve cut interest rates by a quarter of a percentage point for the second time this year on Wednesday in a widely expected move meant to sustain a decade-long economic expansion, but gave mixed signals about what may happen next.

The central bank also widened the gap between the interest it pays banks on excess reserves and the top of its policy rate range, a step taken to smooth out problems in money markets that prompted a market intervention by the New York Fed this week.

In lowering the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, the Fed’s policy-setting committee nodded to ongoing global risks and “weakened” business investment and exports.

Though the U.S. economy continues growing at a “moderate” rate and the labor market “remains strong,” the Fed said in its policy statement that it was cutting rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures."

With continued growth and strong hiring “the most likely outcomes,” the Fed nevertheless cited “uncertainties” about the outlook and pledged to “act as appropriate” to sustain the expansion.

U.S. stocks, lower ahead of the statement, dropped further, and Treasury yields ticked up from their lows of the day. The S&P 500 was last down 0.64% and the 10-year Treasury note yield inched up to 1.77%.

The dollar gained ground against the euro and yen.

“Another rate cut from the Fed to try to shield the U.S. economy from global headwinds,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “Today’s move was more of a hawkish easing in that the Fed’s median forecasts for rates suggested no more cuts this year, while some officials dissented.”

New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019.

Five others, in contrast, see rates as needing to rise by the end of the year.

The divisions were reflected in dissents that came from both hawks and doves.

St. Louis President James Bullard wanted a half-point cut while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George did not want a rate cut at all.

There was little change in policymakers’ projections for the economy, with growth seen at a slightly higher 2.2% this year and the unemployment rate to be 3.7% through 2020. Inflation is projected to be 1.5% for the year, below the Fed’s 2% target, before rising to 1.9% next year.

The rate cut fell short of the more aggressive reduction in borrowing costs that President Donald Trump had demanded from Fed officials, whom he has insulted as “boneheads” who have put the economic recovery in jeopardy.

The Fed also cut rates in July, the first such move since 2008.

Fed officials have said the rate cuts are justified largely because of risks raised by Trump’s trade war with China, a global economic slowdown and other overseas developments.

Their aim, they say, is to balance the potential need for lower rates against the risk that cheaper money may cause households and businesses to borrow too much, as happened in the run-up to the financial crisis more than a decade ago.

· Ancient Gaseous Emanation
57,902 Posts
Discussion Starter · #2 ·
5 Ways Fed's Rate Cut Could Affect Consumers

18 September 2019

Here is a look at how the Fed’s latest rate cut could affect people buying homes, paying off debt and saving for retirement.


Mortgage rates, which are influenced indirectly by the Fed and investors’ expectations for the economy, have already been falling. The most recent rate cut from the Fed could bring those rates down further. The average rate on a 30-year fixed-rate mortgage was 3.56% as of last week, compared with 4.60% a year ago, according to Freddie Mac. Lower rates make it an appealing time for homeowners to refinance their mortgages.

Lower rates can also give home buyers more purchasing power. At a 5% interest rate on a 30-year mortgage, a buyer making a $1,000 monthly payment can afford a house worth $186,282, according to estimates from, a housing website.

If the rate drops to 4%, that same monthly payment would support a home worth $209,461, or an increase of about $23,000. This can be good news for people who are struggling to find homes in their price range, said Tendayi Kapfidze, chief economist for But it can also help drive prices higher at a time when there is a shortage of affordable homes.

“Lower rates make things more affordable today,” said Kapfidze. “But I think in the long run, their impact on increasing home prices ultimately pushes out some people from the market.”


Banks were slow to bump up the rates they pay on savings accounts despite the nine interest rate hikes pushed out by the Fed from the end of 2015 to the end of 2018. The main exception has been online savings accounts, which frequently pay interest rates north of 2%.

But online banks could reduce those interest payments if the Fed continues to cut rates. Consumers worried about low rates could put a portion of their savings in a one-year certificate of deposit, which pays up to 2.5%, said Ken Tumin, founder of, which compares deposit rates from banks and credit unions. But some savers may not want to lock up their savings for much longer than a year on the chance that the economy avoids a recession and interest rates start to rise again, he said.


With interest rates on credit cards near record highs, a drop of 0.25 percentage point likely will not offer much relief to people struggling to pay off their debt, said Greg McBride, chief financial analyst for

The good news is that lower rates mean consumers with strong credit scores should still have access to credit cards offering zero percent interest on balance transfers, said Matt Schulz, chief industry analyst for, a credit comparison site. Moving credit card debt onto an account that does not charge interest can help some borrowers reduce their balance more quickly, he said.


The interest rate reduction from the Fed is not likely to have a huge effect on the cost of a car. For example, a reduction of 0.25 percentage point on a five-year auto loan for a new $25,000 car would lead to savings of about $3 a month, according to an auto loan calculator from here

But lower interest rates should give consumers more leverage to ask for a better deal - either on the price of the car or the interest rate on the loan, Kapfidze says. That’s because car manufacturers have some wiggle room in the interest rate they charge to consumers, with some car makers using lower rates as a way to entice buyers to snap up cars in lower demand.


The Fed’s pivot from tightening monetary policy last year to lowering rates this summer helped push the stock market to record highs this year. Reaction to any further rate cuts from the Fed will depend on whether investors believe the U.S. economy is headed into a recession. Stock markets tend to rise after “insurance” cuts from the Fed, or periods when officials lower rates to address economic concerns but the economy is not in a recession.

Stock markets could fare well in a scenario where the Fed cuts rates for the second time in an “insurance” cycle and avoids a recession. The Dow Jones Industrial Average has typically risen an average of 20% one year after a second rate cut during such an easing cycle, according to Ned Davis Research. Stock market performance can falter if there is an economic downturn.
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