What the Fed Rate Change Means for the Average Consumer
On September 19, the Federal Open Market Committee1 (FOMC) met for the sixth time2 of 2024. And for the first time since March of 2020 a decision was made to lower the Prime Rate.3
Immediate Changes
So the rate changed. What happens next? Well more than likely you are going to start receiving a lot of offers from lenders (including us!) because it’s an exciting time. Again, rates haven’t dropped for four years.
Many individuals and families who needed to borrow during that time period now have an opportunity to refinance higher interest loans to create some breathing room in their monthly budget. Even without needing the breathing room, the money saved on the monthly payment can be put right back towards the loan to pay it off even faster. And if you’ve been holding off on borrowing money to consolidate debt or purchase your next vehicle or home, the Prime Rate change works in your favor.
Another more immediate change you might notice is that certificate of deposits (or share certificates in credit union lingo) will start to lower. These rates aren’t directly connected to the Prime Rate, but they are related. The article at the link to the left can be a bit wordy, but ultimately for the people who bank with a financial organization (like a credit union)4, it’s important for the organization to have a healthy balance between lending and savings rates to remain stable.
So, you might see rates dropping on high yield savings accounts like share certificates. If you were interested in locking down a stable and secure short term investment opportunity at a higher rate, CAFCU is currently offering a limited time promotion on 7-month share certificates. Check out the link for additional information, or you can find details in “Current Promotions” underneath CAFCU Quicklinks near the top of the page.
Upcoming Changes
The FOMC is scheduled to meet two more times in 2024: November 6-7 and December 17-18. A Reuters’ poll reported that 65 out of 95 economists surveyed said they expected the Prime Rate to drop another quarter of a percentage point at each of those meetings. It should be noted, there are no guarantees.
As stated above, the FOMC assess the risk to their goals based off current economic conditions. A labor strike on East Coast ports started this past Tuesday and ended late last night which created a backlog of cargo. Analysts believe this may have cost the US economy $5 billion per day. A devastating hurricane made landfall last week in the Southeast impacting families, communities, and businesses. Just like how the state of the world during the recent pandemic impacted the Prime Rate, it could again impact the decision in further lowering the rate.
What Never Changes
With so many factors outside of our control regarding Prime Rate changes and personal finances, we can turn to what is within our control. Things like:
- developing strong financial habits that support budgeting, healthy credit management, and accelerated debt reduction.
- evaluating and acting on financial and life priorities.
- creating an emergency fund for financial security when needed.
CAFCU offers so much to help with these goals. To learn more about what you can do to improve your financial health through CAFCU, schedule a free financial coaching session with one of our certified financial wellness representatives.
Additional Financial Wellness Resources
Footnotes
1The FOMC is an internal committee of the Federal Reserve System tasked with overseeing the United States’ open markets.
2They meet eight times a year at regularly scheduled meetings to discuss current financial conditions, evaluate positions on monetary policies, and assess risk to their long-term goal of price stability and economic growth.
3The Prime Rate is the lowest interest rate a lender can charge their customers. Rates on lending products will still vary based off the money being backed by a tangible item with value (vehicle loan or home loan) or unsecured funds (credit card or personal loan). Rates of lending products can also vary based off the lender’s organizational needs and the need to follow federal regulations. For examples of this, check out the terms under the "Home Loan Rates" at www.cafcu.org/rates.
4Since credit unions are member owned and not-for-profit they are typically able to offer better rates compared to banks because profits earned are put back into the credit union for things like products, services, and operational management.