The Fed Reserve did it again; they played with our rates, and slashed them again… oh baby, baby.
This time all the way down to a range of 0%-0.25%. The last time the rate were slashed this sudden, was in 2008. But what does this mean? And what even is the Fed Rate? I’ll tell you:
Well, the “Fed Rate” is the interest rate that is set by the Federal Reserve. This can be related to something called the “Fed Fund Rate”, which is the interest rate that creditworthy banks lend to each other in the United States. Basically, just know that it is the interest rate that banks borrow at, set by the Federal Reserve.
Now that you know what the Fed Rate is, let's get to the facts of the unscheduled meeting on 3/15/20:
• The Federal Reserve had an unscheduled meeting: They are being proactive and trying to stay ahead of the effect the virus will have on the economy.
• QE (Quantitive Easing): Which is the government’s way of saying that they are helping out the economy.
• 700 Billion dollars pumped into the market: The Feds are buying Treasury and mortgage-backed securities in order to prop up the economy.
• Syncing with World Banks: Our government is coordinating its fiscal plans with other countries around the world.
• The Market futures have dropped: Basically, the initial markets are down and reacting poorly to the news.
Fed Rate is cool, but Prime Rates are what matter!
The prime rate is the base for the rate that you borrow at, and this is usually set at the Fund Rate +3%. For example, if the Fund Rate is 0.25% than the Prime Rate is 3.25%. This is what affects the rate at which you borrow money.
What Does This Mean For You?
Mortgages: Mortgage rates could lower, BUT they are usually ahead of federal rates and are tied to other factors like the 10-year Treasury note. So don’t go buy Barbie Dream House in Malibu just yet.
Auto Loans: These loans could see a drop, as they are based on the prime rates. That BMW you’ve always wanted could come at a very low-interest rate!
Savings Accounts/CD: These savings rates will go down. Meaning, it makes almost no sense to let the money sit with little, or no, interest in return. This is when it potentially starts to make sense to enter the market.
Loans: If you are in need of a business loan…you might be in luck! Your chances are high to get a business loan at a very low cost.
The Good, The Bad, and The Ugly
The Good: Our government is being very proactive and attempting to stay ahead of any potential economic crisis. Everything they have implemented is meant to help the consumer feel confident, as well as allow companies to stay open and borrow money at a low rate.
The Bad: If/when we end up in quarantine, no matter what the borrowing rates are, people are not going to be interacting, purchasing, or starting businesses.
The Ugly: The markets are still tumbling and have shown no sign of confidence, despite the attempts of the Federal Reserve.