The Federal Reserve's massive interest rate cut on Wednesday should lower interest rates on mortgages, auto loans and credit cards, but cash-strapped consumers shouldn't expect immediate relief, financial experts said.
“It will probably take some time because we know there is a lag effect after interest rates are changed in a certain direction,” Ken Mahoney, CEO of Mahoney Asset Management, told the Post.
The central bank cut interest rates by 50 basis points, its first cut since 2020, after they surged to a 23-year high, and is expected to make two more cuts this year.
But because most loans have fixed interest rates, consumers with this type of debt can't take advantage of lower interest rates unless they refinance their loans or take out new loans. According to Richard BarringtonFinancial analyst at Credit Sesame.
It typically takes 30 to 90 days for consumers to feel the full impact of a rate cut, Ted Jenkin, a business consultant and co-founder of Oxygen Financial, told The Post.
Jenkin said interest rates on mortgage lines of credit, credit cards and personal loans should fall during the first 30 days.
“The cuts could generate an extra $50 to $100 a month in cash flow, depending on a family's debt, to help people fill up at the gas station or buy groceries,” Jenkin said.
Cody Moore, head of growth strategy at Wealth E&P, told The Washington Post that Americans will also see lower auto loan rates.
“For car buyers, auto loan interest rates could fall below 8 percent within the next 30 days,” Jenkin said.
The housing market, which has had limited supply, will start to move again, but it will take longer.
The Federal Reserve's base rate does not directly set or correspond to mortgage interest rates.
But there is a big indirect impact, and the two “tend to move in the same direction,” the LendingTree channel said.
Potential homebuyers, or those looking to refinance after taking out mortgages that soared to 7% or more, will likely have to wait around 90 days for interest rates to come down significantly. The current average is 6.46%The analysts said:
“If mortgage rates drop below 6%, the real estate market may finally be able to unwind,” Jenkin said. “People who have been stuck with historic 3% mortgage rates during the pandemic may see mortgage rates settle at a level that allows them to sell their home and trade up for a bigger one.”
