News Alert: Fed cuts key interest rate by .50%

News Alert: Fed cuts key interest rate by .50%
By Nicole Hall – LendingTree.com

The Federal Reserve lowered interest rates half a percent on Tuesday, in what was the first cut to the federal funds rate since June 2003.

The move lowered the target on a key short-term interest rate from 5.25% to 4.75% – double the quarter-point cut many economists were predicting. This aggressive cut was seen as an attempt to prevent troubles in the housing and mortgage markets from negatively impacting the economy.

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time,” the Federal Open Market Committee said in a statement issued Tuesday, September 18.

What does the rate cut mean to borrowers?
The rate cut sent stocks soaring following the announcement, but the average borrower may be wondering how the news will affect them. In essence, the Fed’s action means that short term interest rates will fall. The federal funds rate, the rate that was lowered, influences the prime rate, which in turn can influence variable-rate short term loans (such as home equity lines of credit); adjustable rate mortgages (although more indirectly); auto loans and even credit card interest rates. Fixed-rate loans, on the other hand, are tied to long-term interest rates like the 10-year Treasury note yield.

In summary, while the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. If the Fed cuts rates, credit card interest rates will dip slightly, as will auto loans and, even, some home loans.

To find out if the interest rate cut could lower your loan payment, call 1 800 555-Tree.