Lower mortgage rates, cheaper borrowing costs, and lower savings returns may be some of the impacts of the recent decision by the Federal Reserve.
The Fed reduced interest rates at its final meeting of the year, marking the third consecutive rate cut that will affect your wallet.
On December 10th, central bank policymakers voted 9-3 to lower the benchmark federal funds rate – a key policy rate affecting borrowing costs for businesses, households, and governments – by a quarter percentage point.
This widely anticipated rate decision lowered the new target range to 3.5% to 3.75%.
The rate decision for January next year remains uncertain, with futures markets expecting policymakers to hit the pause button at the start of the new year. However, consumers may continue to see some relief as they head into 2026.
The U.S. stock market cheered the results of the December Federal Open Market Committee meeting.
The blue-chip Dow Jones Industrial Average rose by nearly 500 points, or over 1%, closing above 48,000 points. The tech-heavy Nasdaq index and the broader S&P 500 index also saw gains of 0.33% and 0.67%, respectively.
Just as there are divisions among Fed monetary policy setters, there are gaps between central bank policy expectations and markets. While officials anticipate a rate cut in 2026, traders are betting there will be at least two.
However, Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, suggests that investors may need to accept the fact that the path to lower rates may be slower than expected.
“We are not surprised to see optimism in the markets in the near term, as the Fed continues to cut rates despite economic growth. However, once investors realize that the path to lower rates may take longer – or may not materialize as they believe – the rose-colored glasses may come off,” Zaccarelli said in an email to The Epoch Times.
Expectations for robust growth, lower, and steady labor markets suggest that Wall Street should not anticipate a.
According to Jeffrey Roach, Chief Economist at LPL Financial, with the Fed expecting stronger economic growth, lower inflation, and a stable labor market, Wall Street should not anticipate the first rate cut next year before mid-spring.
“Monetary policy has no risk-free path, but it appears the committee is betting on productivity gains, which means that even if job growth slows, the economy will continue to maintain strong growth,” Roach said in an email to The Epoch Times.
“Investors should expect the Fed to keep rates unchanged in the first quarter of next year, especially as the economy benefits from the tailwinds of fiscal and policy support. The first rate cut next year may come in the second quarter.”
Nevertheless, as Fed Chair Jerome Powell downplays the possibility of rate hikes, investors are confident that rates can continue to trend downward, which is a major boon for the stock market.
The U.S. stock market often strengthens during periods when the Fed clearly commits to a looser path.
“This is not a bad environment for the market; it just differs from the normalcy before the outbreak of (COVID-19) and periods like 2024,” said a Charles Schwab economist in the Outlook on December 9.
“We believe that balancing based on volatility is more rational than adjusting based on a timeline, while continuing to focus on areas of the market that offer greater returns.”
According to Freddie Mac’s Primary Mortgage Market Survey, the average rate for a 30-year fixed-rate mortgage is 6.19%. This is nearly half a percentage point lower than a year ago and below the 52-week average.
While alternative data from the Mortgage Bankers Association (MBA) and Mortgage News Daily suggests mortgage rates have risen, industry experts indicate they will continue to trend downward in the new year.
Jeff DerGurahian, Chief Economist and Chief Investment Officer at loanDepot, said that the Fed’s policy decision in December will drive mortgage rates lower.
“After the Fed cut short-term rates by 25 basis points in the last meeting of the year, mortgage rates and Treasury yields fell,” DerGurahian said in an email to The Epoch Times.
“The Fed’s announcement of asset purchases starting on December 12, beginning with $40 billion in Treasury securities, along with a less hawkish tone during the post-meeting press conference, all helped drive improvements in rates and pave the way for potentially lower mortgage rates in the future.”
Mortgage rates typically follow the benchmark 10-year Treasury yield, which has risen to around 4.14% this month.
Borrowers may see some relief across various loan instruments.
One of these is credit card rates, which fluctuate with adjustments to the federal funds rate. As monetary policy continues to loosen, the average annual rate for cardholders may decrease in the upcoming billing cycle.
According to LendingTree data, the average annual rate for new credit cards this month is 23.96%, lower than 24.04% in November.
Drivers may see better car loan rates in the future.
Car loan rates vary based on borrower characteristics and vehicle types, as well as changes in the broader market conditions. Lenders typically track the Fed’s policy rate and the five-year Treasury yield as a key mid-term benchmark. This yield has also slightly increased in December, surpassing 3.7%.
Furthermore, Bankrate reports in its latest weekly survey that the average 60-month new car loan rate is 7.03%.
As rates decline, depositors should expect lower returns on their savings.
When the Federal Reserve lowers the federal funds rate, banks’ earnings on businesses like mortgages and commercial loans decrease. To protect profit margins, they typically reduce interest payments on deposits. Online banks and credit unions may maintain higher competitiveness, but deposit rates may gradually decrease.
According to Bankrate’s survey data on various institutions, the national average savings account yield is currently 0.63%.
The original article titled “What the Federal Reserve Rate Cut Means for Your Money” was published on The Epoch Times website.