The phones are blowing up all over as news of the Federal Reserve Board’s decision to cut interest rates to between 0% and 0.25% spreads. Here is what it means to you.
First off, this is a strange deal. The Fed always sets a hard number for its interest rate target. So, this range thing is a little bit strange. But, it is basically either 0% or 0.25% depending upon how you want to look at it.
Second, although the Fed Funds target rate is an important benchmark for lending, it actually has nothing to do with you or your loans. Most loans are tied to the PRIME RATE which generally moves in similar ways to the Fed’s interest rate. Most of the time, when a loan or credit cards specifies the prime rate, they mean the Wall Street Journal Prime Rate.
Here is the thing you need to understand. Your loan agreement says exactly when it is affected by the prime rate. So, your loan may say something like, the prime rate as published in the Wall Street Journal on the first Monday of each month. If that is the case, then today’s move does not affect your interest rates until January, so don’t start looking now.
More coming tomorrow morning…