After facing stock market turmoil, rumors of recession, and a hollering Jim Cramer, the Federal Reserve Board has issued rate cuts this afternoon.
Overnight interest rates were lowered a half a point to 4.75%. Discount
rates were cut by half a point to 5.25%. These changes were made to "promote the restoration of
orderly conditions in financial markets."
The move is one of the larger rate changes we’ve seen in the past few years. Usually Fed rates are adjusted by quarter points at a time. Today’s drop brings Fed rates back to early 2006 levels.
What does this rate change mean to you?
- A more solid stock market. The stock markets have already surged up about 2% based on this news. The rate decrease is largely designed to counteract instability that has surfaced the last few months due to the mortgage and credit crisis news. the move is largely aimed at stopping the growing economic "panic."
- Lower credit card rates. Mortgage rates aren’t directly tied to the fed rates, but credit cards are. Banks set credit card rates based off the prime rate, which is based off the fed rate. You may see your APR decrease along with your rates on home equity loans.
- A few other lower loan rates. Home equity rates and auto loan rates are also keyed off the fed rate and may see some decreases. Car buyers may be especially happy to see auto rates drop back from their recent increase.
What does this rate change mean for the credit crisis? Probably not much. We’re just at the start of the ARM mortgage reset cycle and there’s likely still plenty of foreclosures and housing issues lurking in the future. The rate cut could also potentially have a negative impact on growing inflation concerns.
Emily Davidson – Credit.com‘s Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.
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