What does a federal interest rate cut mean for you?

MINNEAPOLIS — The Federal Reserve is widely expected to lower interest rates at its next meetings on Tuesday and Wednesday.
The federal funds rate currently stands at a 5.25% to 5.50% range — the highest in more than 20 years — and there are expectations that the Fed will reduce the rate by 25 basis points.
Inflation cooled further in August, falling to a three-year low and cementing views that the Federal Reserve will soon start cutting interest rates.
Prices rose 2.5% in the 12 months ending in August, down from 2.9% in July, with falling gasoline prices a large part of the decline, according to the latest figures from the Bureau of Labor Statistics. Excluding volatile food and energy prices, core inflation is believed to have remained unchanged at 3.2%.
“We’re at the tail end from the government having the excess COVID money and the consumers having that money,” Michael Kopiecki, owner of M&M Mortgage in Roseville, explained. “That’s the balance the Federal Reserve has: inflation was hot, your dollar wasn’t going far, wages were roaring, and now wages have come down and inflation has come down much more rapidly.”
Inflation peaked at 9.1% in June 2022 — a four-decade high — as the economy rebounded from the pandemic recession. More recent months have seen a cooling labor market, with hiring and wage increases slowing and with the U.S. economy seemingly on a path toward a so-called soft landing whereby a recession is avoided. 
“The economy is going to have to function on its own without stimulus,” Kopiecki said. “The Fed cutting rates is stimulus, but at the end of the day we’re long into our economic cycle.”
According to Kopiecki, a rate cut would directly affect short-term borrowing like credit cards and car loans. Mortgage rates may be affected too, but those have already come down, with new jobs reports showing a slight change in unemployment.
“Strong jobs market means the rates go up because people have more money to spend, and inflation is too much money chasing too few goods, driving up the prices, just like we had the bidding wars during COVID with the housing market,” he said. “The jobs influence what people can afford as far as shelter-wise. That’s the biggest key.”
If rates fall further, that could incentivize homeowners to consider refinancing, but Kopiecki cautioned homeowners to “do the math” and weigh the costs of their loan and how long they envision owning their property.
“It really comes down to where you’re at, where your family’s at and what you think your future holds,” Kopiecki said.

Kate Gibson

contributed to this report.