close video James Bullard: I’m expecting a 25 basis point cut at the Sept. meeting
Former St. Louis Federal Reserve CEO James Bullard unpacks rate cuts and the labor market on ‘The Claman Countdown.’
Wall Street and Main Street are hoping to usher in the fall season with the first interest rate cut since March 2020, the start of the COVID-19 pandemic, and with this comes the hope of lower borrowing costs.
While it may lower rates for mortgages, auto and personal loans, those carrying credit card debt are likely to be out of luck.
"That's where the real advice is. Don't expect the Fed to ride to your rescue", Ted Rossman, Senior Industry Analyst at Bankrate, told FOX Business. "The change is not going to be that significant. My other big point is that a quarter point, half point, even if credit card rates fell a couple of points, it's not that much of a difference. Just because rates are so high," he warned.
Person inserting or removing Visa Credit Card using touch screen credit card payment at a Five Guys restaurant, Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)
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The average annual percentage rate on standard credit cards is about 20.76%, according to Bankrate, with some in-store retail cards, such as Bloomingdale’s, as high as 31.99%.
Federal Reserve Chairman Jerome Powell, in August at the Kansas City Federal Reserve’s Jackson Hole Economic Symposium, set the stage for a September rate cut.
Jerome Powell, chairman of the US Federal Reserve, second right, arrives for dinner during the Jackson Hole economic symposium in Moran, Wyoming, US, on Thursday, Aug. 24, 2023. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
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"The time has come for policy to adjust," Powell said. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks," he added.
Ahead of the meeting, more market participants, or over 60%, now expect a 50-basis point cut with just 37% expecting a 25-basis point move down, as tracked by CME’s FedWatch Tool, which measures the probability of future rate moves. Ticker Security Last Change Change % M MACY’S INC. 15.03 +0.06 +0.40% V VISA INC. 291.69 +1.24 +0.43% JPM JPMORGAN CHASE & CO. 209.44 +1.49 +0.71% DFS DISCOVER FINANCIAL SERVICES 137.64 +3.74 +2.79% COF CAPITAL ONE FINANCIAL CORP. 145.11 +4.12 +2.92%
As an example, for those carrying a $1,000 balance on a credit card, a 50-basis point rate cut may lower your APR to 20.26% vs. 20.76%, according to Bankrate estimates. The drop in the monthly finance charge would be a paltry $0.42 less. Your minimum payment would likely remain unchanged, as outlined by Greg McBride, chief financial analyst, Bankrate.
A 25-basis point rate cut may lower your APR to 20.51% vs. 20.76%, according to Bankrate estimates. The drop in the monthly finance charge would be just $0.21 less. $1,000 Credit Card Balance, Current APR 20.76%
Rate Cut: 50 basis points
APR: 20.26% vs. 20.76%: Monthly Finance Charge: $16.88 vs. $17.30 or $0.42
Rate Cut: 25 basis points
APR: 20.51% vs. 20.76%: Monthly Finance Charge: $17.09 vs. $17.30 or $0.21
Minimum Payment: Likely unchanged
Source: Bankrate
Even if policymakers stick to an easing cycle, it will still take a few rounds to make a meaningful difference.
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"The Fed's going to be much slower, we think, on the way down than they were on the way up," cautions Rossman.
Rather than wait for the Fed, Rossman suggests exploring other options.
"Maybe get a 0% balance transfer card or take out a side hustle. Cut your expenses. I mean, there's other stuff you can do, but fed rate cuts, in and of themselves, aren't going to make a big difference in the credit card world."
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The Fed will also meet in November and December to round out the 2024 year.
*This article, originally published on September 1, 2024 has been updated.