Here’s how the Fed's rate cut will affect you

After more than two years of Americans suffering under ever-rising inflation, the Federal Reserve has finally cut its benchmark interest by half a percentage point. Now, Americans have been left asking, how will this affect me?

The Federal Reserve’s key rate is now around 4.8%, down from the two-decade high of 5.3%, where it sat for 14 months as the bank fought to tame inflation.

While the pain of high interest rates has been felt by many, it has helped inflation fall from its peak of 9.1%, which it hit in 2022, to its three-year low of 2.5% in August.

Now, the cut from the Central Bank, which is the first in over four years, is expected to be felt everywhere from lower student loan payments to less credit card interest to lower mortgages and everything in between.

One of the most tumultuous markets affected by the rapid rise in inflation and interest rates was the housing market. Plagued with decades-high prices, low supply, and mortgage rates above 7%, prospective home buyers have been pushed out of homeownership.

But now, the rate cuts should play a role in helping bring down mortgage rates, though it won’t happen as immediately as the Fed’s rate cut does.

According to Bankrate , mortgage rates are not directly set by any one entity. Instead, they are impacted by a number of economic factors, as lenders typically set their rates based on the return they require in order to make money. Mortgage rates are also set ahead of time, meaning the recent declines we’ve seen in the national average were dropped with the expectation of current economic factors, including the Fed rate cut.

So, while the Federal Reserve helps set the tone, more goes into play with mortgage rates. However, it is important to note that historically, they have moved in the same direction, going up and down together, according to Jacob Channel, a senior economist at LendingTree, who spoke with NBC News .

“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” he said.

Other areas expected to be affected by the rate cut include credit card debt and other borrowing -- like auto loans, which should become cheaper.

According to WalletHub’s August Credit Card Landscape report, the current average interest rate is 23.18% for new offers and 21.51% for existing accounts. While it also won’t happen overnight, the rate cut will eventually result in lower rates for borrowers at a time when credit card debt is at an all-time high.

The latest consumer debt data from the Federal Reserve Bank of New York reports that Americans’ total credit card balance is $1.142 million. With the lower rates, Americans should feel some relief when their interest payments pop up every month.

Just like home loans, car loans will also be impacted, coming at a time when used car prices are trending downward after skyrocketing with inflation.

Right now, NerdWallet reports that loans for new vehicles are averaging 6.87%, with used vehicle loans sitting at around 9.36% when borrowers have a credit score of 661-780. But while prices and rates should keep dropping, Bankrate’s Greg McBride says it’s important to not just take what you are offered.

“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” McBride said. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”

Now that the Fed has made its first cut, it says it expects to cut interest rates at least two more times this year, which will then affect what happens next with inflation and the job market. What’s most important is that consumers don’t drastically change any habits now after this rate cut.

“Act cautiously and responsibly, and don’t make any rash decisions based on a single Fed meeting or economic report,” Channel said.