NEW YORK (AP) — The Federal Reserve has cut its benchmark interest rate from its 23-year high, with consequences for debt, savings, auto loans, mortgages and other forms of borrowing by consumers and businesses.
On Wednesday, the Fed announced that it reduced its key rate by an unusually large half-percentage point, to between 4.75 and 5 percent, the first rate cut in more than four years.
The central bank is acting because, after imposing 11 rate hikes dating back to March 2022, it feels confident that inflation is finally mild enough that it can begin to ease the cost of borrowing. At the same time, the Fed has grown more concerned about the health of the job market. Lower rates would help support the pace of hiring and keep unemployment down.
“Recent indicators suggest that economic activity has continued to expand at a solid pace," the Fed said in a statement. “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress."
More Fed rate cuts are expected in the coming months, with the steepness of the reductions dependent on the direction of inflation and job growth.
“We know that it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation,” Fed Chair Jerome Powell said at a news conference. “The labor market is actually in solid condition and our intention with our policy move today is to keep it there.”
“We don’t think we’re behind — we think this is timely,” he added. "But I think you can take this as a sign of our commitment not to get behind.”
Although taking action now to try to capitalize on lower rates, like shifting money out of a certificate of deposit or refinancing a mortgage, “might be warranted for some, you shouldn’t feel obligated to completely change up your financial strategy just because rates move lower," said Jacob Channel, a senior economist at LendingTree.
“Act cautiously and responsibly," Channel said, "and don’t make any rash decisions based on a single Fed meeting or economic report.”
Eventually, yields for savers will decline as the Fed lowers its benchmark rate.
“As attractive as yields on savings instruments have recently been, it’s wise not to hold too much in cash because these are short-term instruments and their yields are ephemeral,” said Christine Benz, director of personal finance at Morningstar. “The really great yields that we’ve had recently may go lower.”
If you don't have a need for cash right away, you can continue to lock in what are “still pretty decent yields on offer,” she said. In that case, “longer-term certificates of deposit might make sense.”
“Lower interest rates make it harder to maximize savings and preserve the capital built while interest rates have been higher,” said Matt Brannon, a personal finance expert at MarketWatch guides. “An easy short-term move to protect your savings is to shift your funds into a high-yield savings account, which offers higher interest rates than traditional savings accounts... These types of savings accounts will still help you to preserve capital due to comparatively higher interest rates.”
“While lower rates are certainly a good thing for those struggling with debt, the truth is that this one rate cut isn’t really going to make much of a difference for most people,” said Matt Schulz, a credit analyst at LendingTree.
That said, the Fed's declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.
Still, “the best thing people can do to lower interest rates is to take matters into their own hands,” Schulz said. “Consolidating your debts with a 0% balance transfer credit card or a low-interest personal loan can have a far bigger impact on your debt load than most anything the Fed will do.”
The Fed’s benchmark rate doesn’t directly set or correspond to mortgage rates. But it does have a major indirect influence, and the two “tend to move in the same direction,” said LendingTree's Channel.
To wit, mortgage rates have already declined ahead of the Fed’s predicted cut.
“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move," he said.
Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their current average of 6.46% before many people consider refinancing.
“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” said Greg McBride, an analyst at Bankrate. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”
McBride predicts that the rate cuts and the avoidance of a recession will lead to lower auto loan rates, at least for borrowers with strong credit profiles. For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.
Robert Frick, corporate economist for Navy Federal Credit Union, said that while he thinks a rate cut will work its way into auto loans, it probably won’t happen immediately and people with higher credit scores will likely benefit first.
Loans for new vehicles right now are averaging 7.1%, with used vehicle loans at a much higher 11.3%, according to Edmunds.com.
Those rates, coupled with still-high prices, have sent many possible buyers to the sidelines waiting for rates to drop. Partly as a result, U.S. new vehicle sales rose only a sluggish 2.4% through June.
High prices and rates have also led to more delinquent payments and defaults on auto loans, especially among people with lower credit scores. As a result, Frick said, many lenders will probably try to keep rates high to cover potential losses.
“Rates will be coming down, but we shouldn’t expect them to come down quickly overall,” he said.
Frick suggests waiting for additional Fed rate cuts to come through if possible, especially if you’re buying a used vehicle.
Jeff Schuster, vice president of automotive research for Global Data, said he doubts that modest rate cuts by the Fed will be enough to draw many buyers off the sidelines, unless automakers offer their own low-interest loans and other discounts.
“I think it’s going to take a couple more cuts before we get any substantial relief for those consumers,” he said.
Consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July — the fifth straight annual drop and the smallest since February 2021.
Hiring picked up a bit in August, and the unemployment rate dipped for the first time since March. Employers added 142,000 jobs, up from 89,000 in July. The unemployment rate declined to 4.2% from 4.3%, which had been the highest level in nearly three years.
Those signs indicate that the job market, though cooling, remains sturdy.
The rate at which the Fed continues to cut rates after September will depend in part on what happens next with inflation and the job market, in the coming weeks and months.
The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
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BEIRUT (AP) — The leader of Hezbollah vowed to keep up daily strikes on Israel despite this week's mass bombing attack on its communication devices, and said Israelis displaced by the fighting from homes near the Lebanon border would not be able to return until the war in Gaza ends.
Hezbollah and Israel launched fresh attacks across the border as Hassan Nasrallah spoke for the first time since the deadly device bombings he described as a “severe blow” — and for which he promised to retaliate.
The two-days of attacks targeting thousands of Hezbollah pagers and walkie-talkies have been widely blamed on Israel, heightening fears that 11 months of near-daily exchanges of fire between Hezbollah and Israel will escalate into all-out war.
During the speech, Hezbollah struck at least four times in northern Israel, and two Israeli soldiers were killed in a strike earlier on Thursday. Israeli warplanes flew low over Beirut while Nasrallah spoke and broke the sound barrier, scattering birds and prompting people in houses and offices to quickly open windows to prevent them from shattering.
Israel also launched attacks in southern Lebanon on Thursday, though it was not immediately clear if there were any casualties.
In recent weeks, Israeli leaders have stepped-up warnings of a potential larger military operation against Hezbollah, saying they are determined to stop the group’s fire to allow tens of thousands of Israelis to return to homes near the border.
In a Thursday briefing, the Israeli defense minister said Hezbollah would “pay an increasing price” as Israel seeks to make conditions near its border with Lebanon safe enough for residents displaced by the fighting to return.
“The sequence of our military actions will continue,” he said.
The attack using electronic devices appeared to be the culmination of a monthslong operation by Israel to target as many Hezbollah members as possible all at once — but civilians were also hit. At least 37 people were killed, including two children, and some 3,000 wounded in the explosions Tuesday and Wednesday.
Nasrallah said the group is investigating how the bombings were carried out.
“Yes, we were subjected to a huge and severe blow,” he said. “The enemy crossed all boundaries and red lines,” he said. Pointing to the number of pagers and walkie-talkies, he accused Israel of intending to kill thousands of people at one time. "The enemy will face a severe and fair punishment from where they expect and don’t expect.”
He said Hezbollah will continue its barrages into northern Israel as long as the war in Gaza continues, vowing that Israel will not be able to bring its people back to the border region. “The only way is stop the aggression on the people of Gaza and the West Bank,” he said. "either strikes, nor assassinations nor an all-out war will achieve that.”
Earlier Thursday, Hezbollah said it had targeted three Israeli military positions near the border, two of them with drones. Israeli hospitals reported eight people lightly or moderately injured. Overnight, the miltiary said it struck several militant sites in southern Lebanon,
Hezbollah says its near daily fire is a show of support for Hamas. Israel’s 11-month-old war with Hamas in Gaza began after its militants led the Oct. 7 attack on Israel.
Israel has responded to Hezbollah’s fire with strikes in southern Lebanon, and has struck senior figures from the group in the capital Beirut. The exchanges have killed hundreds in Lebanon and dozens in Israel and forced the evacuation of tens of thousands of residents on each side of the border.
Israel and Hezbollah have repeatedly pulled back from an all-out war under heavy pressure from the United States, France and other countries.
But in their recent warnings, Israeli leaders have said they are determined to change the status quo dramatically.
Speaking to Israeli troops on Wednesday, Israeli Defense Minister Yoav Gallant said, “We are at the start of a new phase in the war — it requires courage, determination and perseverance.” He made no mention of the exploding devices but praised the work of Israel’s army and security agencies, saying “the results are very impressive.”
Gallant said that after months of fighting Hamas in Gaza, “the center of gravity is shifting to the north by diverting resources and forces.”
Israel began moving more troops to its border with Lebanon on Wednesday as a precautionary measure, Israeli officials said. Israel’s army chief, Lt. Gen. Herzi Halevi, said plans have been drawn up for additional action against Hezbollah, though media reported the government has not yet decided whether to launch a major offensive in Lebanon.
Lebanon is still reeling from the deadly device attacks of Tuesday and Wednesday.
The explosions have rattled anxious Lebanese fearing a full-scale war. The Lebanese Army said it has been locating and detonating suspicious pagers and communication devices, while the country’s civil aviation authorities banned pagers and walkie-talkies on all airplanes departing from Beirut’s international airport until further notice.
The attack was likely to severely disrupt Hezbollah’s internal communication as it scrambles to determine safe means to talk to each other. Hezbollah announced the death of five combatants Thursday, but didn’t specify if they were killed in the explosions or on the front lines.
The blasts went off wherever the holders of the pagers or walkie-talkies happened to be in multiple parts of Beirut and eastern and southern Lebanon — in homes and cars, grocery stores and cafes and on the street, even at a funeral for some killed in the bombings, often with family and other bystanders nearby.
Many suffered gaping wounds on their legs, abdomens and faces or were maimed in the hand. Tuesday’s pager blasts killed 12 people, including two children, and wounded some 2,300 others. The following day’s explosion killed 25 and wounded more than 600, Health Minister Firas Abiad said, giving updated figures.
Abiad told reporters that Wednesday’s injuries were more severe than the previous day as walkie-talkies that exploded were bigger than the pagers. He praised Lebanon’s hospitals, saying they had managed to deal with the flood of wounded within hours. “It was an indiscriminate attack. It was a war crime,” he said.
Israelis take cover next to a shelter as a siren sounds a warning of incoming rockets fired from Lebanon, in Nahariya, northern Israel, Thursday, Sept. 19, 2024. (AP Photo/Baz Ratner)
People watch the speech of Hezbollah leader Hassan Nasrallah on a tv screen as they sit in a cafe in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hassan Ammar)
Hezbollah members carry the coffin of their comrade who was killed on Wednesday when a handheld device exploded, during a funeral procession in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
A man mourns during the funeral procession of two Hezbollah members, killed on Wednesday when a handheld device exploded, in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
A girl cries during the funeral procession of two Hezbollah members, killed on Wednesday when a handheld device exploded, in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
Hezbollah members attend the funeral of two of their comrades who were killed on Wednesday when a handheld device exploded, during a funeral procession in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
Police tape cordons off the area as security members and an explosive specialist investigate a suspicious device in Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hassan Ammar)
Hezbollah members carry the coffins of two of their comrades who were killed on Wednesday when a handheld device exploded, during a funeral procession in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
A boy cries during the funeral procession of two Hezbollah members in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
A woman holds a picture of a Hezbollah member who was killed on Wednesday when a handheld device exploded, during his funeral procession in the southern suburbs of Beirut, Thursday, Sept. 19, 2024. (AP Photo/Hussein Malla)
Lebanese soldiers stand guard as their comrades prepare to detonate a walkie-talkie that was found at the parking of the American University Hospital, in Beirut, Lebanon, Wednesday, Sept. 18, 2024. (AP Photo/Hassan Ammar)
This video grab shows a walkie-talkie that was exploded inside a house, in Baalbek, east Lebanon, Wednesday, Sept. 18, 2024. (AP Photo)
Hezbollah fighters salute as they stand next to the coffins of four victims who were killed Tuesday after their handheld pagers exploded, during their funeral procession in the southern suburb of Beirut, Lebanon, Wednesday, Sept. 18, 2024. (AP Photo/Bilal Hussein)
Mourners carry the coffins of victims who were killed Tuesday after their handheld pagers exploded, during their funeral procession in the southern suburb of Beirut, Lebanon, Wednesday, Sept. 18, 2024. (AP Photo/Bilal Hussein)
