On March 15, the Federal Reserve cut the interest rates for the second time in a month. The rate cut of a full percentage point left target rates at 0%-0.25% — “the same level that prevailed from the financial crisis in 2008 [into the recovery of] 2015,” explains Greg McBride, Chief Financial Analyst at bankrate.com.
This move was made in an effort to keep borrowing cheap so the economy stays stimulated and so consumers continue to spend, even in times of financial precarity, says Bill Losey, President Bill Losey Retirement Solutions, LLC.
But what will the upshot actually be? McBride says he doesn’t expect anyone to go out and buy a new car right now, given the current state of the economy. He predicts that low interest rates will become meaningful when we are on the other side of the coronavirus. “That backdrop of really low interest rates will spur a lot of consumer and business borrowing and spending that we will need to revive the economy,” he says. Once we’re out of this slump and people are ready to buy, they will jump at the chance to make a big purchase, or take out a loan, at such a cheap rate.
So what actions should you be thinking about?
Finally, it is important to understand that a 0% interest rate for the target fed funds does not mean you can get a loan at 0% interest. McBride explains that this is the rate that banks would have to pay if they borrow from each other. The United States Government is still paying 1.4% on the money they borrow — an average consumer can expect to pay more, with mortgage rates averaging around 3.5%-4% right now.
With Rebecca Cohen
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