Federal Reserve cuts interest rates by half a percentage point, ending the fight against inflation – KIRO 7 News Seattle

WASHINGTON — Economists and financial experts say the benefits of lower interest rates may be harder to feel in Western Washington.

On Wednesday, Federal Reserve Chairman Jerome Powell announced that the key interest rate, i.e. the cost of borrowing, would be cut by half a percentage point to 4.75%.

The result means interest rates on credit cards and auto loans will fall. Many lenders have already reduced borrowing costs on home mortgages starting in the spring in anticipation of the reduction, according to a report from Zillow. The company estimates that the reduction could save an average of $1,200 per month in mortgage payments.

However, according to Daryl Fairweather, chief economist at Redfin, that number is valid nationwide and the reality in Western Washington is murkier.

Redfin released a report showing that existing home sales are at their lowest level since 2012, noting that potential buyers are waiting on interest rates.

“The Seattle market is fairly supply-constrained, so lower interest rates will likely lead to higher home prices and monthly mortgage payments may not end up being lower,” Fairweather said.

While rising interest rates have been due to inflation for years, Brent Beardall, CEO of WAFD Bank, believes rising prices were not the main reason interest rate cuts began.

“In the past, the risks were inflation, but today I think the risks have changed and are more in the labor market,” Beardall said.

Overall, Beardall believes the economy is strong, but an August jobs report that was not as robust as expected and an unemployment rate that rose to 4.2% suggested the Federal Reserve had gone too far in fighting inflation.

“This is good news. It means that the Fed has done what we all hoped it would do, which is to provide a soft landing for the economy: it has brought inflation under control without ruining the labor market,” Beardall said.

Beardall expects hiring in Western Washington to remain high due to the large number of corporate headquarters in the region.

Prices will not return to 2020 levels. Beardall says such deflation would have a significant negative impact on the stock market.

The interest rate cut represents a shift from a savings-friendly economy to a credit-friendly economy. The returns from high-interest savings accounts or deposit insurance accounts will no longer be as lucrative as in past years.

“The last thing you want to do is pull your money out of a high-yield CD and rush into the stock market for higher returns but also higher risk, so you have to be careful,” said Lisa Weil, a certified financial planner. “Things are always in flux, things are always changing, and if you're constantly reacting to external changes, you'll lose sight of your goals.”

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