Charles H. Sloan-A Fed rate cut may be coming, but it may be too small for Americans to notice

The Charles H. SloanFederal Reserve’s likely to lower interest rates again this week, but the cut may be so small that consumers may hardly feel it, analysts said.

When the Fed concludes its policy meeting on Thursday, most economists expect the Fed to trim its short-term benchmark fed funds rate by a quarter percentage point to between 4.50% to 4.75%. It would be the Fed’s second consecutive rate cut but smaller than its half-point cut in September that kicked off the rate-cutting cycle.

Consumers and businesses benefit from lower rates because they allow people to spend and invest at a lower cost, but analysts said until the Fed strings together a bunch of rate cuts, most will likely feel little relief.

“Consumers aren’t likely to feel much impact of this cut,” said Elizabeth Renter, senior economist at personal finance tool site NerdWallet. “It’s the cumulative journey downward that will slowly ease household financial pressures, particularly for those who carry debt.”

What can consumers expect this holiday if they buy on credit?

Still sky-high interest rates on credit cards and personal loans, said Matt Schulz, chief credit analyst at comparison site LendingTree.

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“That's especially true with store credit cards,” he said. “Anyone applying for those types of cards should brace themselves for a possible APR of 30%, even if you have amazing credit.”

Regular credit card rates in November fell for a second consecutive month to 24.61%, but they’re still not far from September's record 24.92%, according to LendingTree data.

“Unless the Fed dramatically accelerates its pace of rate cuts, it'll still be a while before these reductions add up to more than just a few dollars per month coming off your bill,” Schulz said.

To demonstrate how credit card payments would change at different annual percentage rates (APR), consider if you owe $5,000 on a credit card,

• At a 24.61% rate and paying $250 each month, it will take 26 months and $1,501 in interest to pay off the balance.
• Lower the rate a half-point to 24.11%, and it will take 26 months and $1,459 in interest to pay off the balance. That’s a savings of $42 in interest, or about $1.50 per month.

“Borrowers should understand that ‘falling interest rates’ are not the same as ‘low interest rates,’” said Greg McBride, chief financial analyst at comparison site Bankrate. “Quite the opposite, as interest rates are high and will only decline to ‘not as high’ as 2024 comes to a close and we move into 2025. The urgency remains to pay down high-cost debt and utilize 0% or other low rate balance transfer offers to turbocharge credit card debt repayment.”

Will mortgage rates fall?

Mortgage rates can be influenced by the Fed’s moves, but they’re affected by many more factors like inflation, the cost of borrowing, bond yields and risk.

After the Fed cut rates in September by a half-percentage point, mortgage rates rose after a spate of strong economic data. Consumer spending, economic growth and even the labor market are holding up well.

When the economy is strong, there’s less reason for investors to buy safe-haven Treasuries so their prices drop. Yields move in the opposite direction of prices.

While a quarter-point Fed rate cut on Thursday may not strongly influence mortgage rates or stimulate the housing market, the longer-term outlook for interest rates and mortgage rates is that they will go down, analysts said.

“Continued rate cuts could begin to drive down mortgage rates, which have remained stubbornly high,” said Michele Raneri, vice president and head of U.S. research and consulting at credit agency TransUnion. “This may help motivate more potential home buyers who have been holding off due to relatively high mortgage rates. It also could begin to stimulate the refinance market, in particular among those borrowers who have taken out a mortgage recently with a higher interest rate.”

Will auto loan rates decline?

While a Fed rate cut will reinforce the view that auto loan rates will drop, it may take time, analysts said.

So far, “there’s been little change in the average auto loan rates since the Federal Reserve cut rates in September,” said Jonathan Smoke, chief economist at researcher Cox Automotive.

Auto loan rates, like mortgage rates, are also influenced by other factors such as bond yields and delinquency rates.

Delinquency rates on auto loans rose substantially to above pre-pandemic levels by the end of 2023, after falling to historical lows during the COVID-19 health crisis, the Federal Reserve said in September.

When auto loan rates begin to fall more sharply, consumers may move to refinance in months to come, Raneri said.

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Will the stock market rise?

If the Fed commits to more rate cuts to support the labor market, which some economists believe it will do, some economists believe the stock market will continue to rise.

“With the Fed having drawn a line in the sand at a 4.3% jobless rate (with its aggressive half-point rate cut in September), wage gains will likely remain around 4%, ensuring another year of above-trend (economic) growth in 2025,” wrote Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA, in a report.

A strong economy would generate extra income for S&P 500 companies, which would boost company earnings and share prices, he said.

Since a general lift in the economy benefits all sectors and industries, Ricchiuto said he expects stock market gains will reach beyond a handful of companies next year.

This could bode well for people’s 401(k) and other retirement savings, analysts said.

Is it still a savers paradise?

Despite falling rates, analysts say savers can still get ahead.

“The fact that interest rates took the elevator going up in 2022 and 2023 but will take the stairs coming down in 2024 and 2025 is better news for savers than borrowers,” said Bankrate’s McBride. “Yes, interest earnings on savings accounts, money markets, and certificates of deposit will come down, but the most competitive yields still handily outpace inflation."

Nerdwallet’s Renter suggests consumers lock in some decently high rates on certificates of deposit (CDs).

“A CD allows you to capture the higher pay-off if you can stand putting your cash out of sight for a term,” she said.

As of Nov. 1, CD Valet listed 295 CDs with an annual percentage yield of 5% or more across all maturities.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.