What the Fed’s Interest-Rate Cuts Mean for Borrowing and Saving Money
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Here's your Money Briefing for Monday, March 17th. I'm Julia Carpenter for The Wall Street Journal. The Federal Reserve started lowering rates back in September. So why haven't many consumers felt the relief yet?

So what you're seeing is the Fed is starting to be concerned about the economy. So they want to cut interest rates to ease things a little bit. However, when there's strain in the economy, that means credit risk goes up. We'll talk with WSJ reporter Imani Moiz about how the Fed's rate cuts have and haven't been affecting mortgages, credit cards and savings accounts. That's after the break.

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Upgrade your playbook and make the switch to NetSuite, the number one cloud ERP. Get the CFO's guide to AI and machine learning at netsuite.com slash wallstreet. netsuite.com slash wallstreet. When the Federal Reserve cuts interest rates, consumers have historically seen the effects ripple through different parts of their financial lives. But lately, those ripple effects aren't as pronounced as they once were. Wall Street Journal reporter Imani Moise joins me to talk more.

Imani, people tracking interest rate cuts are presented with a bit of a confusing picture right now. The Fed has been lowering rates since September, but consumer borrowing costs have stayed stubbornly high. So why is that?

So the Fed controls short-term rates, and the same forces that are pushing short-term rates lower are keeping longer-term rates higher. So what you're seeing is the Fed is starting to be concerned about the economy, so they want to cut interest rates to ease things a little bit. However, when there's strain in the economy, that means credit risk goes up.

It's riskier to lend to businesses or certain kinds of consumers. So you're going to see lenders be a little bit more conservative and potentially raise rates or keep rates higher to compensate themselves for that risk. Thinking about how mortgage rates have been affected by this environment, and of late we've seen the average rate on a 30-year fixed rate mortgage hovering around 6.6 percent. How have these rates been affected by the Fed's recent cuts?

Honestly, not much. What we've actually seen since the Fed started lowering rates is that mortgage rates have moved in the opposite direction. And that's because mortgage rates tend to track the 10-year Treasury yields much more closely than they track the federal funds rate. And what we're seeing is that investors, particularly bond investors, are starting to be more concerned about the economy, expanding deficits, a potential trade war. So as those concerns are rising, mortgage rates are going up with them.

And how is that different from what we've seen in years past?

Mortgage rates are much higher than what homebuyers have been used to or what homebuyers got used to during the pandemic when rates were near zero. That means it's much, much more expensive to buy a home today because not only are interest rates higher, home prices are also much higher as well. When it comes to credit cards, we know that in theory, these rate cuts should mean lower credit card APRs for consumers. But you discovered in your reporting that credit card rates are staying high. So why is that?

Yeah, they start to come down a very little bit. But most borrowers aren't going to feel a difference because the rates are still near historic highs. And that's because when the Federal Reserve rises rates,

credit card interest rates tend to rise very quickly. When the Fed cuts, they fall much slower because, again, the Fed tends to cut rates when it's concerned about the economy, which means that there's more risk, which means it's harder for borrowers to repay loans. And banks are going to price that risk into the way that they price their credit cards. So what do financial advisors and other experts say those struggling to pay their balances right now should do in coming months?

The first thing that you should do is look around to see if you could refinance your debt for a lower rate. The best option is going to be a zero interest balance transfer offer, which is still on the market. And if you can't find one of those, even refinancing to a personal loan can lower that interest rate for you and make repaying that debt more manageable without having to worry about ballooning interest payments.

So we've talked about mortgage rates. We've talked about credit card APRs. Next, I want to ask you about savings accounts. We're seeing the national savings rate increase, which means more and more people are stockpiling cash. But are banks passing on these rate cuts to savers?

Yes. As a matter of fact, savings account yields have been the most responsive to Fed rate cuts so far. For the most part, especially high yield savings accounts, those rates have moved in lockstep with the Fed. Unfortunately, if you're a saver in this economy, it means you're going to earn a little bit less. But on the bright side, it's not.

If you moved your money to a high-yield savings account during the pandemic, you're still going to be earning a lot more than if you left your money in maybe a standard saving account at one of the large chain banks that tend to pay less than 1%. And lastly, Amani, thinking about the future, you talked to investors who said they're forecasting Fed interest rates to drop later this year. So what could that mean for consumers? So the analyst I spoke to said that they

They wouldn't hold their breath for interest rates on mortgages or credit cards to fall later this year. If you're holding out trying to buy a home, sooner is always better than later because if rates do go down, you can refinance.

And credit card interest rates, you'll have to be aggressive in paying them down. And you can call your bank to negotiate a lower rate. It's not going to make a material difference in how much interest you're going to pay in the long run. So just pay that down as soon as possible or refinance. And unfortunately, we're entering a lower interest rate environment. So if you're a saver, get comfortable with the fact that it's not going to be as lucrative to keep your money doing nothing as it was a few years ago.

That's WSJ reporter Imani Moise. And that's it for your Money Briefing. We'll be back tomorrow with WSJ's Ashleya Ebeling to go over some tax season to-dos for anyone with a side hustle. This episode was produced by Ariana Osborough with supervising producer Melanie Roy and deputy editor Chris Zinsley. I'm Julia Carpenter for The Wall Street Journal. Thanks for listening. ♪