BELMONT, N.C. — The Federal Reserve cut interest rates by half a percentage point Tuesday, bringing the benchmark rate down to between 1% and 1.25% and many consumers are benefiting.
Economists say Tuesday’s cut is the largest emergency cut the U.S. bank has made since the 2008 recession. In a press conference held Tuesday, the Federal Chair said the decision to make the cut was to counter the economic impact of coronavirus.
“We are beginning to see the effects on the tourism and travel industries, and we are hearing concerns from industries that rely on global supply chains,” Fed Chairman Jerome Powell said.
Dr. William Van Lear is an economics professor at Belmont Abbey College in Belmont, North Carolina. Van Lear said he thinks they're signaling that they're ready to help with lower borrowing costs and liquidity if needed.
“When they do that, it makes it easier for companies that may be having now, difficulty in paying back loans because the sales are dropping off because they’re losing their customer base due to the virus; that could jeopardize loan repayments," Van Lear said. "Well, if the system is highly liquid and the rates are very low it makes it easier for companies who are in that financial trouble to make good on their loans."
Van Lear says while the future of the virus and its total impact on the economy is uncertain, he says in the meantime consumers stand to benefit.
“With the policy rates so low it means other rates are low," he said. "Automobile loan rates are low, mortgage rates are low, even personal loan rates are low.”
Economists say homeowners who refinance their mortgages could lock in new low-interest rates, with some homeowners refinancing as low as 2.5%.
Credit cardholders could also see a drop in interest. Economists say you could see lower interest rates on your annual APR within a billing cycle or two.
“It lowers the cost of loans, thereby lowering the cost of debt," Van Lear said. "People are willing to borrow more and then spend that money on top of what they spend out of their income…that stimulates the economy. You get more jobs and economic activity.”
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