SIOUX FALLS, S.D. (KELO) – For the first time in four years, the Federal Reserve has cut interest rates. Last week, they lowered rates by a half percentage point– which is double from the usual .25 percentage point cut.
The cut lowers the federal funds rate into a range between 4.75% and 5%, down from its prior range between 5.25% and 5.5%, which had been its highest level in 23 years.
It’s being called a jumbo cut and the Feds hope it will prevent the economy from slipping into a recession.
Economist Jared McEntaffer with the Dakota Institute says we won’t see any immediate change from that cut, though.
“The full impact is not going to be felt for several months, right,” McEntaffer said. “Don’t expect drastic changes. We’re going to start seeing credit card rates dropping a little bit, we’re seeing mortgage rates falling a little bit, we’re going to see business activity pick up a little bit.”
Mortgage rates have lowered to just above six percent but McEntaffer says we won’t see two or three percent rates again anytime soon.
“As these changes the Fed makes build on top of themselves, we’ll continue to see those rates come down,” McEntaffer said. “And that helps with buyers but it also helps with home builders.”
Inflation has been another area of concern for many Americans and right now it is at about two and a half percent.
“So when the Fed cuts its rate, as we just saw, it’s the Fed saying they feel confident that the push of inflation that was constantly making prices higher and higher and higher has slowed down a little bit and they feel comfortable lowering rates to help ease the economy,” McEntaffer said.
But that doesn’t mean we won’t still feel a tug on our money at the grocery store.
“So when we were talking about prices going up six percent every year, they’ve gone up six percent,” McEntaffer said. “The prices have gone up. The milk is more expensive, the eggs are more expensive, the houses are more expensive. Just because inflation goes down to two percent doesn’t mean that all of those prices are going to start dropping.”
The initial impact of the cut is expected to be small for loans like used cars and credit card rates. The Federal Reserve is planning more cuts over the next two years.
