NEW YORK—The Federal Reserve dropped its benchmark interest rate by a quarter percentage point on Oct. 30. This decision will affect consumers with loans and savings accounts, the stock market, and investors.
The cut brought the Fed’s benchmark rate to between 1.5 percent and 1.75 percent, which may make it easier to pay off a loan or manage other debts as interest rates will drop.
A chief investment officer at Anchor Health Properties, James Schmid, said that this might cause car loans to cost less on a monthly basis.
This would enable people with good credit to get a better car than they otherwise would have since it would be easier to finance.
In addition to car buyers, people with stocks and bonds will be affected by the rate cut as well. Bonds and U.S. treasuries will give lower returns, which will drive more assets to the stock market.
“People are chasing yield in today’s market, so it’s driven up the stock market,” Schmid said.
The stock market has been on a nearly 10-year bull run, or an economically sound rise. To prevent another big collapse of the markets, like in 2008, the Fed is supposedly trying to cushion for that by cutting the interest rate, according to Schmid.
Lowering interest rates in a time when the economy is doing well is unusual, according to Randy Breidbart, the founder of Park Avenue Financial Advisors.
Usually rates are lowered to bring us out of a recession, whereas this move aims to prevent one, Breidbart said.
The lowered rates will negatively affect savings account holders and people who invest in bonds since less interest will be paid on them, Breidbart said. In addition, life insurance policies and long-term care policies will also be negatively affected because insurance companies invest those assets in bonds.
On the other hand, people with adjustable rate mortgages will be at an advantage since their rates will be lower as a result of the federal rate cut.
The rate cut will also affect students with college loans. “A lot of students consolidate their loans and that would be a positive impact on those people as well,” Breidbart said.
