• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Home
About Us Contact Us Advertising
Articles
Budgeting Debt Frugal Insurance Investing Making Money Retirement Saving Money
Tips
Money Saving Tips Trash Audit
Make Money Forums Blogs
Create a Blog Control Panel All Entries All Blogs
Tools
Calculators Prescription Drug Coupons Online Savings Accounts Test Your Knowledge Financial Directory Credit Cards

SavingAdvice.com Blog

Bridging the gap between saving money and investing

Subscribe

 

Join Now or Login

  • Home
    • Advertising
  • Tips
    • Money Saving Tips
    • Recycle, Reuse and Repurpose
  • Make Money
  • Credit Score Guide
  • Forums
  • Blogs
    • Create a Blog
  • Tools
  • Financial Basics
    • Back to Basics: Saving Money
    • Back to Basics: Beginners Guide to Retirement
    • Back to Basics: What Every Child Under 10 Should Know About Personal Finance
    • Back to Financial Basics: Investing In Stocks

What the New Lower Federal Interest Rate Means

August 1, 2019 by Flanice Lewis

 

What the New Lower Federal Interest Rate Means

Interest rates are going down. The Federal Reserve has reduced its federal interest rate by 0.25%. The overnight lending rate is the basis for lending between banks and affects the rates offered to consumers for various loans. The last rate cut was almost twelve years ago after the real estate bubble burst in 2008. Conversely, rates have been raised nine times in nearly four years.

What is the Federal Reserve?

The Federal Reserve, or the Fed, was created in 1913 to stabilize the financial system in the United States. It’s also known as the central bank of the US and one of the most powerful financial institutions in the world. The Fed controls the monetary policy for the US. Its mandate, set by Congress, is “maximum sustainable employment, stable prices, and moderate long-term interest rates.” The Fed uses increasing and decreasing interest rates to combat the effects of inflation and stimulate the economy.

Reasons for the Decreased Federal Interest Rate

This latest reduction is said to mitigate global risk amid worsening relationships and trade concerns. The stock market and the current administration wanted a more significant decrease of 0.50%. The stock market reacted negatively to the news since lower rates present a weak economy. The S&P 500 decreased over 1%, to its lowest point in the last two months.

The Fed Chairman, Jerome Powell, alluded to the possibility of more cuts. However, there are no long-term cuts planned. The rate decrease was to prepare for future economic uncertainties. The administration is not particularly happy with the initial reduction and blames Mr. Powell’s policy decisions for slow economic growth. However, unemployment has been low for quite some time, and inflation has been steady. Conservative decreases as a preventative measure may contribute to more prolonged results.

What It Means When Interest Rates are Low

Federal interest rates affect how much it costs to borrow debt. Consumers are more likely to make big purchases when rates are lower. The hope is that lower rates will decrease spending on debt and increase consumer spending elsewhere. Lower rates also incentivize businesses to take out loans for expansion, equipment, and other enterprising efforts. Rates usually are reduced when the economy is in a recession, so this an unusual situation. The economy is strong, yet the Fed decreased the rate. The Fed previously reduced the rate to combat recession in 2003. The rate was 1.25% then. The current rate range is 2 to 2.25%

If you’re looking to finance a property, a car, or business expenses, now may be the time to strike. Also, now be a great time to refinance. If you took out a loan within the last four year, when the rates were increasing, the lower rates might be especially appealing. You may see a significant reduction in your monthly payments or total interest paid over the life of your loan. However, don’t feel pressured to accrue unnecessary debt because rates are low. The economy and markets are cyclical. Stick to your goals and financial plan.

Read More

  • Understanding Interest Rates and How They Impact the Cost of Living
  • You Need A Credit Card Strategy for Rising Interest Rates
  • How the Fed’s Interest Rate Increases Affect Your Finances

Flanice Lewis

Flanice Lewis is a DC-based financial literacy advocate, blogger, traveler and breast cancer survivor. In addition to having bought her first house at 23, she is a graduate of Howard University and The University of Virginia. You can follow her on Instagram or read her work here on critical financial.

Reader Interactions

What did you think about this article?
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)
Loading...

Comments

    Leave a Reply Cancel reply

    Your email address will not be published. Required fields are marked *

    Primary Sidebar

    • Articles
    • Tips
    • Make Money
    • Credit Score Guide
    • Forums
    • Blogs
    • Tools
    • About
    • Contact

    Subscribe to Our Newsletter
    Your subscription could not be saved. Please try again.
    Your subscription has been successful.
    Copyright © 2025 SavingAdvice.com. All Rights Reserved.
    • Privacy Policy