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- The Federal Reserve cut its fed funds rate on Wednesday by 25 basis point to a range of 1.75% to 2%
- In response, banks across the US reduced their prime lending rate to 5% from 5.25%.
- This will affect the rates for credit cards and other non-mortgage loans.
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The Federal Reserve on Wednesday announced their second interest rate cut of 2019 as the central bank attempts to fight rising economic risks.
The 0.25% cut to the federal fund rate to a range of 1.75% to 2% was not as steep as some investors and President Donald Trump hoped. Fed Chairman Jerome Powell also walked a tightrope between acknowledging that strong economic fundamentals may not necessitate more cuts and the possibility for more stimulus if potential dangers – like the president’s trade war – ramp up.
While the outlook for interest rates is unclear, what is clear if that Wednesday’s cut could soon have an effect on your wallet.
Most simply, it will get slightly cheaper to borrow money. The fed funds rate determines the interest rate at which banks borrow short-term money. Cuts are typically passed on to other borrowers, mostly consumers, through lower rates on things like credit-card debt.
The amount paid on this debt is based on the banks’ prime loan rate, the interest rate used as a starting point for non-mortgage loans.
The Fed’s decision to raise the fed funds rate had an immediate impact on these rates Wednesday, sending them to 5% from 5.25%, mirroring the magnitude of the Fed’s cut.
And so after what seemed like an arcane and abstract policy change from the Fed on Wednesday, this is the impact that may matter to those who don’t follow the news as closely as they follow their credit-card bill.
Here’s the quick rundown of the changes to prime loan rates – all to 5% from 5.25% – announced at major US banks so far: