Credit card debt and the Fed rate cut

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Credit card debt and the Fed rate cut

Wall Street and Main Street are ushering in the fall with the first interest rate cut since March 2020, the start of the COVID-19 pandemic, and with that comes hope for lower borrowing costs.

THE Federal Reserve cut interest rates by 50 basis points in September, a bigger move than some expected, boosting investor confidence.

Although this may reduce rates for mortgages, auto and personal loansthose with credit card debt are likely to be out of luck, at least in the short term.

“That’s where the real advice is. Don’t expect the Fed to come to your rescue,” Ted Rossman, senior industry analyst at Bankrate, told FOX Business ahead of the move. “The change won’t be that significant. My other big point is that a quarter of a point, a half of a point, even if credit card rates went down a few points, it’s not a big difference. Just because that the rates are so high,” he warned.

A customer inserts a Visa credit card using the touchscreen credit card payment at a Five Guys restaurant in Queens, New York. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images)

DEMAND FOR CREDIT ADVICE INCREASES IN THESE STATES

The average annual percentage rate on standard credit cards is about 20.76%, according to Bankrate, with some in-store retail cards, such as Bloomingdale’s, going as high as 31.99%.

Credit card, Fed cuts rates

Bloomingdale’s Credit Card Statement (RENARD company)

As an example, for those with a $1,000 balance on a credit card, a 50 basis point rate reduction can reduce your APR to 20.26% from 20.76%, according to estimates from Bankrate. The drop in monthly finance charges would be a paltry $0.42 less. Your minimum payment would likely remain unchanged, as Greg McBride, chief financial analyst at Bankrate, pointed out.

Fed Chairman Jerome Powell also indicated that policymakers will continue to cut rates this year and perhaps even further.

“This recalibration of our policy will help maintain the strength of the economy and the labor market, and continue to enable further progress on inflation as we begin the process of moving towards a more neutral position. We do not are on no prefix. “We will continue to make our decisions meeting after meeting. We know that reducing policy restrictions too quickly could hamper progress on inflation,” Powell said at his news conference.

Teleprinter Security Last Change Change %
M MACY’S INC. 3:34 p.m. -0.36

-2.29%

V VISA INC. 283.76 -1.03

-0.36%

JPM JPMORGAN CHASE & CO. 222.58 -0.84

-0.38%

DFS DISCOVER FINANCIAL SERVICES 145.16 -0.29

-0.20%

COF CAPITAL ONE FINANCIAL CORP. 154.25 -1.77

-1.13%

FED CHAIRMAN POWELL REVEALS HIS RATE CUT PLANS

The Fed’s current target is now 4.75% to 5.00%, with a projected target of 4.4% by the end of the year, 3.4% by the end of 2025 and 2.9% by 2026. All of this could of course change depending on overall economic conditions.

Currently, market participants are divided on whether the Fed will cut by 25 or 50 basis points at the November meeting, according to the CME’s FedWatch tool, which measures the probability of future rate movements. The last meeting of the year will take place in December.

Teleprinter Security Last Change Change %
M MACY’S INC. 3:34 p.m. -0.36

-2.29%

V VISA INC. 283.76 -1.03

-0.36%

JPM JPMORGAN CHASE & CO. 222.58 -0.84

-0.38%

DFS DISCOVER FINANCIAL SERVICES 145.16 -0.29

-0.20%

COF CAPITAL ONE FINANCIAL CORP. 154.25 -1.77

-1.13%

Even if policymakers stick to one cycle of easing, it will take a few more cycles to make a significant difference to credit card APRs.

401(K) MILLIONAIRES ATTACK A NEW RECORD: LOYALTY

“We think the Fed will be much slower on the way down than on the way up,” Rossman warns.

Rather than waiting for the Fed, Rossman suggests exploring other options.

“Maybe get a 0% balance transfer card or do a side hustle. Cut your spending. I mean, you can do other things, but the Fed rate cuts, by themselves, won’t do anything. not a big difference in the credit card world,” he said.

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*This article, originally published on September 1, 2024, has been updated.

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