(InvestigateTV) — The Federal Reserve – the nation’s central bank and most powerful economic institution – has made headlines this year for its moves on interest rates. But many consumers don’t realize how those decisions directly affect their daily lives.
“Effectively, the Fed controls the price of money,” Greg McBride, chief financial analyst at Bankrate, explained. “And they use interest rates as the sticker for that. So, if the economy is weak, they will lower interest rates to give the economy some juice. If the economy is running a little too hot, and inflation is an issue, then they will raise interest rates in an effort to slow the economy and get that inflation under control.”
On Wednesday, the Federal Reserve cut interest rates by a quarter-point, setting the target range at 4.00–4.25 percent. In a statement, the Fed noted that “growth of economic activity moderated in the first half of the year,” with job gains slowing and inflation “somewhat elevated.”
With borrowing costs now lower, many consumers are weighing whether this is the right time to buy a home or make other major financial moves.
“Job security has a lot to do with whether or not people have the confidence to take the plunge,” he said. “High home prices and high mortgage rates are a real barrier to affordability. But even a sharp decline in mortgage rates wouldn’t do a lot for housing, if it came in the context of a much weaker economic environment with rising unemployment.”
McBride said whether rates go up or down, the smart move for most consumers is to tackle high-cost debt – like credit cards or home equity lines – and boost savings, so they’re ready for whatever the Fed decides next.
“If you’re in a situation where you pay down that high-cost debt and you boost your emergency savings, you’re then better positioned to weather-whatever the economy may throw our way,” he advised.
McBride also said to keep saving for long-term goals like retirement and college funds. It can be difficult when the market is uncertain – but starting early helps everyone stay prepared.