Article Summary –
The Federal Reserve announced a half-point rate cut, lowering the federal funds rate to 4.9%. This move aims to boost the economy by reducing borrowing costs, which could lower mortgage rates, spur apartment construction, and make consumer debt cheaper. The Fed cites cooled inflation and stable employment as reasons for the cut. Lower mortgage rates may encourage home sales and impact home prices due to increased supply. Reduced rates may also benefit auto loans, student loans, and credit cards, potentially strengthening the job market. The decision comes amidst slowed job growth with the latest report showing 142,000 jobs added in August.
Federal Reserve Announcement to Lower Mortgage Rates and Encourage Apartment Construction
The Federal Reserve on Wednesday announced a half-percentage-point cut to its key interest rate, potentially boosting the economy, lowering mortgage rates, and reducing housing costs.
The federal funds rate will now be around 4.9%, the lowest since March 2023, making borrowing cheaper for consumers.
This decision follows a significant decline in inflation, which hit 2.5% in August, the lowest since February 2021.
“The Committee is confident that inflation is moving sustainably toward 2%, balancing the risks to its employment and inflation goals,” the Fed stated.
Federal Reserve Chair Jay Powell emphasized that the US economy and labor market are in “solid shape,” aiming to maintain the lower interest rate.
How It Affects You
The federal funds rate serves as a benchmark for borrowing rates, meaning this cut could impact everyday Americans.
Mortgage rates, linked to government bond yields and reflecting central bank policy, recently hit a 19-month low at 6.2% for 30-year fixed loans. This trend is expected to continue, reducing payments for those with variable rate mortgages and lowering borrowing costs for new buyers.
Lower mortgage rates might also prompt homeowners with previously locked-in low rates to consider selling.
“Interest rates and home prices are different post-pandemic due to a housing supply shortage,” Kathy Bostjancic, Chief Economist at Nationwide, told Reuters. “Decreased mortgage rates could increase housing supply and potentially lower prices in some areas.”
Lower interest rates can help developers secure favorable loans, making apartment construction more affordable.
“I’m hoping lower interest rates lead to increased multifamily construction,” Jack Liebersohn, Economics Professor at UC Irvine, told Vox. “This could eventually lower rents.”
The Fed’s rate cut could also benefit car buyers by reducing auto loan costs, which are currently at their highest since 2001.
Consumer debt costs, including student loans and credit card interest, should also decrease.
Lower Fed rates are usually linked to a stronger job market, as they ease borrowing for employers. This decision comes as the latest US jobs report indicates slowed hiring, adding 142,000 jobs in August, fewer than expected. Unemployment remains low at 4.2%.
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