Interest rate cut is on the table

The highest interest rates in a generation could finally come down on Wednesday when the U.S. Federal Reserve considers its first rate cut in four years, ushering in a new era of lower borrowing costs for anyone looking for a new home, car or credit card.

In recent comments, Fed Chairman Jerome Powell signaled that “the time has come” for a rate cut at the group's September meeting, which ends today. The question now is how big the cut will be. Forecasts range from a quarter of a percent cut to half of the benchmark rate, which is at a 23-year high.

The parent rate of all interest rates is actually a range and has been at 5.25 to 5.5 percent since July 2023, following a campaign of rate hikes to combat rising inflation. In response, interest rates on mortgages, auto loans and credit cards have reached historic highs.

The two-day Fed meeting ends at 2 p.m. with an interest rate announcement. Powell will hold a press conference at 2:30 p.m. The financial world will be watching with bated breath.

When would a rate cut take effect?

Interest rates do not magically reset when the Federal Reserve raises or lowers its benchmark federal funds rate.

Benefit from high interest rates: Best current CD rates

So what can consumers expect in the hours and days following an interest rate cut?

When the Fed cuts interest rates, it reduces the interest that commercial banks pay when they borrow money overnight and lend excess reserves to each other, according to Investopedia.