Federal Reserve lowers interest rate

CHATTANOOGA, Tenn. (WDEF)- The Federal Reserve made a big announcement that could affect your bank account.

The Federal Reserve announced they are dropping the federal interest rate by a half percent to five percent.

This is the first time they’ve cut the interest rate since the Covid-19 Pandemic.

If you’re in the market for a new home or car, this could become a huge advantage for you.

Chris Hopkins, a partner with Apogee Wealth Partners, said, “Coming out of Covid, with all of our supply chain problems we saw prices spike. We saw inflation go from about two percent to up over nine percent where it really begins to bite out of our pocketbooks. So in order to fight that, the Federal Reserve had to raise interest rates from close to zero, to north of five percent.”

Now that the Federal Reserve is lowering rates back to five percent, this could mean savings for homeowners and those looking to purchase a vehicle.

For example, since 2019, the average mortgage of a home has doubled from 15-hundred dollars to three thousand dollars a month.

Hopkins said, “If you take half of that back out, you’re going to go from a three thousand dollar payment to let’s say $2,200-$2,300. Substantial, per month. Again, depending on the price of the house, this should probably stem some of the rapid increase in home prices as more inventory comes on, but once again, it’s probably going to reduce your monthly payment by 10 to 15 percent, probably something like that.”

However, he says if you have savings accounts tied to the interest rate, those could lose value due to this decision.

“You want to watch for just a reasonable expectation in a relatively safe investment that’s paying regular interest. You’re not in the stock market, you’re not looking for that kind of risk. Don’t reach too far. If the market is giving you a five percent CD for six months and somebody offers you 8 or 9, you have to be very cautious of where that extra three or four percent comes from,” said Hopkins.

Hopkins says he expects to see more cuts by the end of the year, but expects the Fed to take it slow after previous issues with interest cuts in the 1980s.