Article Summary –
The Federal Reserve announced a 0.5% cut in its key interest rate, lowering it to 4.9%. This aims to boost the economy, reducing mortgage rates and potentially lowering rental costs through increased apartment construction. The move follows a significant drop in inflation to 2.5%. The interest rate cut could also lower auto loan costs, consumer debt, and support a stronger job market, despite recent slowed hiring rates.
Federal Reserve’s Announcement to Lower Mortgage Rates and Encourage Apartment Building
The Federal Reserve on Wednesday announced it was cutting its key interest rate by half a percentage point, potentially boosting the economy and reducing housing costs.
The federal funds rate will drop to around 4.9% — the lowest since March 2023 — making borrowing cheaper for consumers.
Inflation has cooled recently, with the 12-month inflation rate falling to 2.5% in August, the lowest since Feb. 2021.
“The Committee has gained greater confidence that inflation is moving sustainably toward two percent,” the Fed said in a statement.
Federal Reserve Chair Jay Powell stated that the labor market and US economy are in “solid shape.” He added the interest rate cut is intended to stay.
How This Affects You
The federal funds rate is a benchmark for borrowing rates nationwide. This rate cut can have direct effects on Americans.
Mortgage rates, linked to government bond yields, reflect the central bank’s monetary policy. Last week, mortgage rates hit a 19-month low on 30-year fixed loans at 6.2% as brokers anticipated the Fed’s rate cut. More rate cuts are expected, likely further lowering mortgage rates and reducing monthly payments for those with variable rate mortgages.
The decline in mortgage rates may also encourage homeowners with low rates to consider selling.
“The dynamic between interest rates and home prices is very different post-pandemic,” Chief Economist Kathy Bostjancic told Reuters. “In some areas, you may see a decrease in home prices due to increased supply.”
Lower rates should enable developers to secure favorable bank loans, facilitating apartment building in areas with a housing shortage.
“Lower interest rates could lead to a surge in multifamily construction,” Jack Liebersohn, an economics professor, told Vox. “This won’t immediately affect rents but will in the long run.”
The rate cut could also help car buyers by lowering auto loan costs, which are currently the highest since 2001.
Consumer debt costs, like student loans and credit card interest, should also decrease.
Lower Fed rates typically correlate with a stronger job market, as it becomes easier for employers to borrow funds.
The Fed’s decision comes amid a latest US jobs report showing slowed hiring; employers added 142,000 jobs in August, fewer than expected. Unemployment remains low at 4.2%.
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