WASHINGTON–The Federal Open Market Committee (FOMC) will begin its two-day meeting today and most analysts–along with President Trump–are expecting a rate cut. Standing most to benefit are credit card holders should the Fed act, according to one analysis.
If the Fed moves to cut rates–with most analysts expecting it to be a quarter-point–it will be the first reduction in a decade. The big question for many is what signal the Fed will send in its minutes following the meeting—will they indicate it’s a one-and-done rate cut, or perhaps indicate another rate cut may be considered. Fed Chairman Jerome Powell is scheduled to hold a press conference following conclusion of the FOMC meeting on Wednesday.
Based on recent economic reports, NAFCU's Chief Economist and Vice President of Research Curt Long is among those who anticipates the FOMC will cut rates by 25 basis points.
Many investors are already predicting a rate reduction, having priced in almost 70 basis points of easing through year end, according to CME Group’s FedWatch tool.
What Q2 Numbers Show
As CUToday.info reported earlier, the FOMCmeeting comes as real gross domestic product (GDP) increased at an annual rate of 2.1% during the second quarter, according to data released by the Department of Commerce’s Bureau of Economic Analysis (BEA).
In the second quarter, consumer spending remained the driver, surging to a 4.3% annual rate, as spending on goods rose at the fastest rate since the first quarter of 2006, the BEA said.
Effect on Consumers
Separately, the WalletHub has released the results of a new Fed Rate Survey gauging consumer sentiment on the matter. Among the highlights of its survey:
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Rate-Cut Odds: There is a 78% chance of the Fed reducing its target interest rate by 25 basis points on July 31 and a 22% chance of a 50-point rate cut.
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Consumer Support: 72% of people support a Fed rate cut, and roughly 61% think it would be good for the economy.
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Recent Rake Hikes: The Federal Reserve has increased its target rate nine times since December 2015, with no decreases. Due to those nine rate hikes, credit card users were set to pay roughly $14 billion more in interest during 2019 than they would have otherwise.
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Credit Card Savings: 66% of Americans say interest rates on their loans are too high. Credit card users would save roughly $1.5 billion in interest if the Fed cuts its target rate. The average household currently owes $8,390.
- Trump vs. the Fed: 7 in 10 people say the Federal Reserve knows how to grow the economy better than President Trump.
The full survey can be found here.
Good for Cardholders
“A Fed rate cut would be great for people with credit card debt, saving them a total of roughly $1.5 billion on interest over the next 12 months,” said WalletHub CEO Odysseas Papadimitriou. “Car shoppers will also benefit, as we expect auto loan rates to drop about 15 basis points from current levels. When it comes to home loans, the forthcoming Fed cut has already been baked into mortgage rates, so shoppers are unlikely to see much of a change after the Fed’s announcement. Unfortunately, the only real losers in all of this are people with online-only savings accounts, whose yields we expect to drop by around 11 basis points. Of course, if the rate cut helps keep the economy chugging along, it will also benefit most of us broadly.”