The Effects of the Federal Interest Rate Cut

The Effects of the Federal Interest Rate Cut
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The Effects of the Federal Interest Rate Cut
The federal rate sets out the target rate upon which banks rely to set their interest rates over reserve loans. Domestic, international and other rates are directly linked to the federal rate. Hence, a change in this rate heavily influences the economy’s outlook through the money supply side, affecting the banks and eventually the consumers CITATION Ali19 \l 1033 (Bull, 2019). In the recent past, the global economy’s growth has slowed creating a worrying trend that economists and other policymakers should look into more cautiously. A redundant economy sparks inflation and low investment due to high rates. For instance, the month of September saw the economy experience money strains, high commodity prices, reduced expenditures and companies starting to lay off employees. This trend has been evident across the globe an indication of tough economic times.
The move by the Federal Reserve to cut by a quarter-point the interest rates the third time this year will help bolster the economy. This means that financing costs are low encouraging borrowing and investing. Lower rates result in cheaper loans which imply that consumers’ borrowing and expenditure rates go up. Hence, more mortgages, home equity loans, credit cards, student loans that influence the total being of individuals CITATION Jes19 \l 1033 (Dickler, 2019). People are able to invest in businesses, education and many economic aspects resulting in economic growth.
With a rate cut, the prime rate for credit card lowers attracting many consumers to acquiring credit cards. However, credit card debt experiences meagre change. For instance, a quarter-point reduction from approximately 17.5% saves only $1 a month for an individual making minimum payments CITATION Jes19 \l 1033 (D...