Is a Federal Reserve Rate Cut on the Horizon? It Might Be Too Minor to Feel

The Federal Reserve is expected to reduce interest rates again this week, but the decrease might be so minimal that it’s unlikely to significantly impact consumers, according to experts.

At the end of its upcoming policy meeting on Thursday, it’s widely anticipated that the Fed will lower its short-term benchmark fed funds rate by 0.25 percentage points, bringing it to a range of 4.50% to 4.75%. This follows a more substantial half-point cut in September, which initiated this cycle of reducing rates.

While lower rates generally benefit both consumers and businesses by reducing the cost of borrowing and encouraging spending and investment, analysts believe that significant relief for consumers will only come after several rate reductions.

“The impact of this particular cut on consumers will likely be minimal,” explained Elizabeth Renter, a senior economist at NerdWallet, a personal finance website. “It’s the overall downward trend that will gradually mitigate the financial strain on households, especially those with existing debts.”

What should credit users expect during the holiday season?

Expect persistently high interest rates on credit cards and personal loans, notes Matt Schulz, chief credit analyst at LendingTree. “This is particularly true for store credit cards,” he added. “Those applying for these cards might face APRs as high as 30%, regardless of excellent credit scores.”

As of November, the average credit card rate slightly decreased for the second month in a row to 24.61%, yet this figure remains close to September’s record high of 24.92%, based on data from LendingTree.

“Unless the Fed significantly speeds up its rate cuts, these minor reductions will only subtract a few dollars from your monthly bill,” Schulz remarked.

For example, if you owe $5,000 on a credit card with an APR of 24.61% and pay $250 each month, you would spend 26 months and $1,501 in interest to clear the debt. If the rate drops by half a point to 24.11%, you would save $42 in interest, or about $1.50 per month.

“Falling interest rates doesn’t mean the rates are low,” said Greg McBride, chief financial analyst at Bankrate. “They’re still high, just not as high, and the focus should be on paying down high-cost debt and taking advantage of 0% or other low-rate balance transfer offers to accelerate debt repayment,” he advised.

Will there be a decrease in mortgage rates?

Mortgage rates are influenced by various factors including inflation, borrowing costs, bond yields, and risk, apart from the Fed’s decisions.

Despite the Fed’s half-point rate cut in September, mortgage rates actually increased following strong economic indicators. The economy remains robust with solid consumer spending and economic growth, along with a stable job market.

Since high economic performance reduces the appeal of safe-haven assets like Treasuries, causing their prices to fall and yields to rise, a mere quarter-point cut by the Fed might not significantly affect mortgage rates or stimulate the housing market. However, analysts predict that ongoing rate reductions will eventually lead to lower mortgage rates.

“Ongoing rate cuts should eventually help to lower mortgage rates, which have been relatively high,” said Michele Raneri, vice president at TransUnion. “This could encourage more prospective homebuyers to enter the market and enhance the refinancing market, especially for recent high-rate mortgage holders,” she suggested.

What about auto loan rates?

Although a rate cut by the Fed may give the impression that auto loan rates are set to decrease, it could take some time, analysts note.

“There hasn’t been much change in average auto loan rates since the Fed’s rate cut in September,” observed Jonathan Smoke, chief economist at Cox Automotive.

Like mortgage rates, auto loan rates are also affected by factors like bond yields and delinquency rates, which have risen significantly above pre-pandemic levels, according to a Federal Reserve report from September.

As rates start to drop more significantly, it could lead to a wave of refinancing in the auto loan sector, predicted Raneri.

Is the stock market expected to climb?

If the Federal Reserve continues to reduce rates to support the job market, some experts believe the stock market will keep climbing.

“With the Fed’s aggressive policy stance in September, aiming for a jobless rate no higher than 4.3%, wage growth should stay around 4%, contributing to another year of robust economic performance in 2025,” stated Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA, in a report.

This robust economy is likely to increase revenues for S&P 500 companies, which in turn could boost their earnings and stock prices. Ricchiuto anticipates broad stock market gains next year, which would positively affect retirement savings like 401(k)s, according to analysts.

Does it remain a haven for savers?

Despite the downward trend in rates, savers still have opportunities to benefit, experts say.

“Interest rates skyrocketed in 2022 and 2023 but will descend gradually in 2024 and 2025, which actually serves savers better than borrowers,” explained McBride from Bankrate. “Although returns on savings accounts, money markets, and CDs will decrease, the most competitive rates will still significantly exceed inflation.”

Elizabeth Renter from NerdWallet recommends securing CDs with relatively high rates. “Opting for a CD can secure a higher return if you’re okay with locking up your money for a set period,” she said.

As of November 1, CD Valet listed 295 CDs offering annual percentage yields of 5% or more across various terms.