The Fed Keeps Interest Rates Unchanged: How Their Decision Affect Your Finances

On January 30-31, 2024, the Federal Reserve Board (The Fed) met to discuss the U.S. economy and determine how best to regulate money and credit conditions. The decision, announced on January 31, to keep the Federal funds rate unchanged, will influence borrowing and lending rates throughout the economy. While their decision was widely expected, they set the stage for potential rate cuts in the future. What does it mean for your personal finances?

What the Fed's Decision Means for Borrowing
The Fed's focus is on maintaining stable inflation and promoting economic growth. One area directly affected by the Federal Reserve's interest rate decision is borrowing costs. Whether you are considering a mortgage, a car loan, or using a credit card, changes in interest rates can impact your monthly payments and overall borrowing costs.

Credit Cards
Does your credit card have a variable interest rate? If you don't know, you should find out. While the recent decision to hold rates steady may not have an immediate impact on credit card rates, potential rate cuts in the future could provide some relief from high borrowing costs. However, it is important to note that any decreases are likely to be modest, and credit card rates are expected to remain relatively high.

Mortgages and Real Estate
Mortgage rates are influenced by various factors, including the Federal Reserve's interest rate decisions. Other factors, such as inflation and the overall state of the economy, supply and demand, affect the long-term trajectory of mortgage rates. Interest rates can make buying a home more or less affordable. With interest rates expected to drop in the future, buyers may delay homebuying decisions, but when interest rates do fall, that may lead to an increase in demand for the housing market, thereby increasing home prices. Potential homebuyers may consider buying homes at current rates and refinance when interest rates drop in a year or two. Conduct thorough research and consider various factors, such as local market conditions, before making real estate investment decisions.

Auto Loans
Like other consumer purchases, car loans will likely not feel an immediate change due to The Fed's decision. Still, potential rate cuts in the future could make financing a car more affordable. Competition between lenders and market incentives may further contribute to lower interest rates on auto loans.

Savings Accounts and Bonds
The yields on savings accounts tend to be correlated with the Federal Reserve's target federal funds rate. Therefore, when the Fed raises or cuts rates, the interest rates you earn on your savings accounts may increase or decrease. Similarly, bond prices can increase when interest rates decline, leading to potential capital appreciation for bondholders. However, it is worth noting that even if rates come down, savers can still benefit from higher yields compared to previous years. Some investors will benefit from locking in longer-term CDs or savings bonds to take advantage of current rates before they decline further.

Stocks
The decision to keep the interest rates steady was anticipated, so the expectation for the stock market will be influenced little by today's announcement. However, it is essential to consider other factors, such as market dynamics and individual investment goals, when making investment decisions.

The Federal Reserve's interest rate decisions are complex and can have far-reaching consequences for your finances. If you have further questions about how this decision will impact your financial situation, speak with your financial advisor. For over two decades, the advisors at Hurlow Wealth Management Group have helped clients navigate the ever-changing landscape of interest rates and make informed decisions. If you want to know more about our fiduciary financial planning process, CLICK HERE to schedule an introductory call.

Sources:
https://www.cbsnews.com/news/federal-reserve-interest-rate-decision-2024/
https://www.cnbc.com/2024/01/31/what-the-federal-reserves-next-move-means-for-the-rates-you-pay.html

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