Cheaper mortgages and car loans: lower interest rates on the horizon

The cost of 30-year mortgages and new auto loans has fallen slightly in recent months, good news for borrowers who have been dealing with high prices and high interest rates for years.

These borrowing costs are expected to fall further: the Federal Reserve cut its key interest rate on Wednesday, and more cuts are expected.

When the Fed lowers its benchmark interest rate, it is ultimately trying to lower borrowing costs for businesses and consumers. Setting interest rates is one of the main ways the Fed can try to speed up or slow the economy, which can include what lenders offer potential homeowners, car buyers and other consumers.

Wednesday’s announcement marked the first time the Fed has cut rates in more than four years, after a long battle to contain rising inflation caused by pandemic-related supply chain problems and other factors.

Borrowing costs reached their highest level in two decades as part of the Fed’s fight against inflation.

Several factors play a role in the Fed’s decision to change rates, including the strength of the labor market. Hiring across much of the U.S. economy has been healthy in recent months, with wages still rising and many Americans still eager to work.

However, unemployment is slowly increasing and wage growth is starting to slow.

That has raised questions about whether the Fed waited too long to cut rates. It has also added to many people’s concerns about the state of the economy.

Even as inflation has cooled, months of rapid price increases have left a lasting impression on many consumers. And the cost of many household items, major purchases and crucial services remains high for many people.

While Wednesday’s news will likely bring relief to buyers and borrowers, the effects of the Fed’s rate moves won’t be immediate. It could take months for credit card annual fees, mortgage fees and other interest rates to change materially.