Former CEO of the Federal Reserve Bank of St. Louis James Bullard discusses interest rate cuts and the labor market on “The Craman Countdown.”
Wall Street and Main Street are poised to usher in the fall with the first interest rate cut since March 2020, when the COVID-19 pandemic began, raising hopes of lower borrowing costs.
Interest rates on mortgages, auto loans and personal loans may be falling, but people with credit card debt are likely out of luck.
“The real advice is there: Don't expect the Fed to come to the rescue,” Ted Rothman, senior industry analyst at Bankrate, told FOX Business. “The change isn't going to be that big. My other big takeaway is that even if credit card interest rates go down a couple of points, a quarter of a point, a half of a point, it's not going to make much of a difference because the rates are too high,” he warned.
A person inserts or removes a Visa credit card using the touchscreen credit card payment at a Five Guys restaurant in Queens, New York. (Photo: Lindsay Nicholson/UCG/Universal Image Group via Getty Images)
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According to Bankrate, the average annual interest rate on a standard credit card is about 20.76%, with some store retail cards, such as those from Bloomingdale's, charging as much as 31.99%.
Federal Reserve Chairman Jerome Powell predicted a rate cut in September at the Kansas City Federal Reserve Bank's Jackson Hole Economic Symposium in August.
U.S. Federal Reserve Chairman Jerome Powell (second from right) arrives at a dinner for the Jackson Hole Economic Symposium in Moran, Wyoming, USA, Thursday, August 24, 2023. (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)
Fed Chairman Powell unveils rate cut plan
“The time has come to adjust policy,” Powell said, adding that “the direction to move is clear, and the timing and pace of rate cuts will depend on upcoming data, evolving outlook, and the balance of risks.”
About 70% of market participants expect a 25 basis point cut at the Sept. 18 meeting, with 30.5% expecting a double cut. CME's FedWatch ToolIt is an index that measures the probability of future interest rate changes.
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| Ma | Macy's Inc. | 15.57 | -0.00 |
-0.01% |
| Five | Visa Inc. | 276.19 | +1.85 |
+0.67% |
| JPM | JPMorgan Chase | 224.80 | +2.59 |
+1.17% |
| Dofus | Discover Financial Services | 138.73 | +1.13 |
+0.82% |
| Corfu | Capital One Financial Co., Ltd. | 146.93 | +1.56 |
+1.07% |
For example, Bankrate estimates that for someone with a $1,000 credit card balance, a 25 basis point interest rate cut could lower their APR from 20.76% to 20.51%. The reduction in monthly financing fees would be just a $0.21 decrease. Minimum payments would remain unchanged, according to Greg McBride, chief financial analyst at Bankrate.
Even if policymakers persist with the easing cycle, it will likely take several more to bring about any meaningful change.
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“We believe the Fed will be much more lenient when rates are falling than when they are rising,” Rothman warned.
Rather than waiting for the Fed's announcement, Rothman suggests considering other options.
“Maybe get a 0% balance transfer card or start a side hustle. Cut your expenses. There are other things you can do, but the Fed's interest rate cut, in and of itself, isn't going to make a huge difference in the credit card industry.”
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The Fed is also scheduled to meet in November and December to close out 2024.
