Here's what will become more affordable due to the Federal Reserve's 50 basis point interest rate cut.

The Federal Reserve announced a 50 basis point cut to its benchmark interest rate on Wednesday, marking the first reduction in borrowing costs since March 2020 as inflation eases.

The federal funds rate of the central bank is now between 4.75% and 5%, providing Americans with relief on their credit card, personal loan, auto financing, and mortgage expenses.

Since June 2022, the Fed had raised interest rates 11 times in two years in an attempt to control inflation, which reached a high of 9.1% in that month.

Despite the current inflation rate of 2.5% being below the Fed's 2% target, the central bank is optimistic that the price growth trend is declining.

The slowing job market also influenced the decision. High borrowing costs discourage business investment, which can lead to decreased hiring. The Fed's dual mandate is to keep inflation low and maximize sustainable employment.

"In a speech on Aug. 23, Federal Reserve Chair Jerome Powell stated that the risks to inflation have decreased, while the risks to employment have increased."

How much cheaper borrowing costs could be

The federal funds rate, which is determined by the Fed, influences credit card and loan interest rates for lenders.

Although reducing borrowing costs by half a percentage point may not result in significant savings, it can still make a difference if you have multiple debts, which is a common situation for many Americans.

The federal funds rate is expected to fall to a range of 4% to 4.75% by late December, with 76% of traders predicting this rate cut, according to CME FedWatch Tool data.

According to Bankrate, here's a breakdown of how the 50 basis point interest rate cut will impact your payments based on loan or credit type.

• The interest rates on credit cards are expected to decrease by approximately 50 basis points in the upcoming billing cycles, resulting in a slight reduction of the current average rate of 20.78% to about 20.28%. This change will result in a small reduction in monthly interest payments for a balance of $5,000.
• A rate cut of half a percentage point would result in a reduction of $8 per month in payments for a new $35,000 loan spread over five years.
• A $50,000 home equity line of credit would result in a monthly payment reduction of $20.84.
• Adjustable rate mortgages: Payments may decrease slightly. Since mortgages are not directly linked to the Fed's benchmark rate, the amount of savings will vary depending on the loan's terms.

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