The Fed cut rates today by 50 bps (basis points) or 1/2 of 1%. The Fed lowered what’s known as the “Fed Funds rate” to 3%. This is the interest rate banks pay one another for overnight loans. The AP reported that it’s at the lowest level since spring 2005. The Fed also lowered what’s knows as “the Discount Rate” to 3.50%. This rate is the interest the Fed charges banks on loans that the Fed itself makes to them.
This is the second Fed Funds rate cut in as many weeks – the last cut was an “emergency rate cut” of 75 bps or 3/4 of 1%. Adding it all up, you’re looking at a decline of 1.50% in key lending rates.
A “Basis Point,” as it is called, equals .01 of 1% (or one-hundreth of 1%). Financial-types use the term because it’s easier to discuss interest rates this way. So, if your mortgage rate gets readjusted from 7.25% to 7.55 %, you can say that your interest has gone up .3% or 30 bps (pronounced “bips”). From the example above, you could say that the Fed has lowered rates 1.50% or 150 “bips.”
What does these consecutive rate cuts mean for you? Nothing, you’re still screwed basically. Most likely, neither your mortgage, your student loans, your car payment, nor your credit card rates, or any other type of money you’ve borrowed will become cheaper as a result of the Federal Reserve’s recent activity. Only new activity will most likely be affected.
In case you haven’t stopped reading in utter disgust, the interest you receive in your savings account is probably going down, as will CD and Bond rates in the near future.
Ugh, what’s next – higher gas prices?