The Federal Reserve lowers interest rates by 0.25% following the election. What does this mean for you?

• At its two-day meeting on Thursday, the Federal Reserve reduced its benchmark rate by 25 basis points.
• Heading into the U.S. presidential election, economic anxiety was a widespread sentiment. Lower borrowing costs could provide some relief to struggling Americans.

The Federal Reserve announced it will lower its benchmark rate by a quarter point, or 25 basis points, following the 2024 presidential election.

High inflation had left many Americans struggling to afford the cost of living, leading to economic uncertainty as Election Day approached.

The Fed has cut interest rates for the second time this fall, following a half-point reduction on Sept. 18, as recent economic data shows inflation falling back towards its 2% target.

Overnight borrowing costs for banks are determined by the federal funds rate, which also affects consumer borrowing costs.

Credit card users are paying off last year's holiday debt, while holiday shoppers plan to spend more and take on debt. In 5 cardholders, a credit card has been maxed out or nearly reached its limit.

The Fed's preferred inflation gauge, the personal consumption expenditures price index, increased by 2.1% year over year since the central bank's last meeting.

Despite the independence of the central bank from the White House, Trump has been advocating for the Fed to lower interest rates.

This move is good news for consumers who have been struggling with high borrowing costs after 11 rate increases between March 2022 and July 2023, although it may take some time for lower rates to have a noticeable impact on household budgets.

"The Fed raised rates from the ground floor to the 53rd floor of a skyscraper, now they are on the 47th floor and another rate cut will take us to the 45th floor — the view is not a whole lot different," said Greg McBride, chief financial analyst at Bankrate.com.

A Fed rate cut could affect various financial products, including credit cards, mortgage rates, auto loans, and savings accounts, in the coming months.

Credit cards

The rise in the average credit card rate from 16.34% in March 2022 to more than 20% today is directly linked to the Fed's benchmark rate hike cycle.

The Fed's first rate cut has caused annual percentage rates to decrease slightly, but not significantly.

"Although the rates are high, they are likely to decrease in the future, but it is unlikely that credit card bills will be significantly reduced, according to Matt Schulz, LendingTree's credit analyst."

The best move for those with credit card debt is to look for a better rate, negotiate a lower rate with their issuer, or take advantage of a 0% balance transfer offer, he advised.

"Taking matters into one's own hands is the best way to lower interest rates, despite another rate cut."

Trump suggested limiting credit card interest rates to 10% on the campaign trail, but this proposal would need Congress' approval and withstand opposition from the banking sector.

Auto loans

Despite fixed auto loans, the rising vehicle prices and high borrowing costs have become "increasingly challenging to handle," Jessica Caldwell, Edmunds' head of insights, stated.

President Trump's promises of financial relief resonated with voters across the country during this economic strain, as she stated.

The cost of financing a car has increased from 4% to around 7% on a five-year new car loan, according to Edmunds. However, rate cuts from the Fed will decrease the rising cost of financing a car, bringing rates below 7%, due to competition among lenders and more incentives in the market.

Caldwell stated that Americans would view a small federal interest rate reduction as a favorable move in the right direction, providing relief from the constant financial pressures they face.

Trump has advocated for tax deductibility of car loan interest, which would require Congress's approval.

Mortgage rates

Since the pandemic, a sharp rise in mortgage rates has contributed to making housing affordability a significant challenge.

Trump has stated that he will lower mortgage rates, despite the fact that 15- and 30-year mortgage rates are set and linked to Treasury yields and the economy. However, Trump's election has caused a rise in the U.S. 10-year Treasury yield, which has resulted in higher mortgage rates.

The Fed's decision to cut interest rates could potentially ease some pressure.

"Mortgage rates, which have remained stubbornly high, could begin to decrease if continued rate cuts are implemented, according to Michele Raneri, vice president of U.S. research and consulting at TransUnion. As of the week ending Nov. 1, the average rate for a 30-year, fixed-rate mortgage is 6.81%," said the Mortgage Bankers Association.

According to Jacob Channel, senior economist at LendingTree, it is unlikely that mortgage rates will experience a substantial decrease due to the current economic climate.

If investors continue to worry about the future, Treasury yields and mortgage rates will struggle to decrease, according to Channel.

Student loans

Federal student loan rates are fixed, so most borrowers won't be immediately affected by rate cuts. Efforts to forgive student debt are now likely off the table.

If you have a private loan, the rates may be fixed or tied to the Treasury bill or other rates. According to higher education expert Mark Kantrowitz, as the Fed cuts interest rates, the rates on private student loans will decrease over a one- or three-month period, depending on the benchmark.

According to Kantrowitz, a quarter-point cut on variable-rate loans would reduce monthly payments by approximately $1 to $1.25 for every $10,000 in debt.

Borrowers with existing variable-rate private student loans may eventually have the opportunity to refinance into a less expensive fixed-rate loan, but doing so will mean losing the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment, and loan forgiveness and discharge options.

Extending the term of a loan means you will pay more interest on the balance in the long run.

Savings rates

The target federal funds rate has a correlation with the yields of deposit rates, although the central bank does not have direct control over deposit rates.

According to Bankrate, top-yielding online savings account rates have increased significantly, with many paying more than 5%, which is the highest rate savers have earned in nearly two decades. This is a significant improvement from the 1% rate seen in 2022.

McBride stated that although interest earnings on savings accounts, money markets, and certificates of deposit will decrease, they will still remain competitive and outpace inflation.

High-yield savings accounts are nearly as good as top-yielding CD rates, which pay more than 4.5%, according to Bankrate, with one-year CDs currently averaging 1.76%.