July 31, 2019 / 10:00 AM / 7 months ago

GRAPHIC-The Fed will soon cut U.S. interest rates. What will it mean for your wallet?

    By Trevor Hunnicutt and Jason Lange
    NEW YORK/WASHINGTON, July 31 (Reuters) - A decision by the
Federal Reserve to cut interest rates may do little at this
point to cut some of the costs that matter to many U.S.
    From mortgages to credit cards, banks and other lenders may
resist offering substantially lower rates to consumers, analysts
said, even if the central bank makes a widely expected cut to
its policy rate, currently targeted between 2.25% and 2.50%. 
    For one thing, some borrowing costs are already low and
markets have already priced in expectations the Fed would
support the economy. Mortgage rates have also dropped, with
rates on the average 30-year U.S. home loan falling under 4.1%,
near a 22-month low, more than half a point below the average
since the global financial crisis more than a decade ago,
according to the Mortgage Bankers Association.
    "If we drive down into the mid-3.7%, mid-3.8% range, you're
talking about historic affordability from a purchasing power
standpoint," said Mark Fleming, chief economist for First
American Financial Corp, which provides insurance related to
real estate transactions.         "There's not a lot of wiggle
room here in the first place. I think we established five or six
years ago that a mortgage rate around 3.5% or 3.6% is a floor.
That's about as low as you can go." (tmsnrt.rs/2yq9LPO)
    That low mortgage level was when the Fed's rates were near
zero and the central bank was buying mortgage bonds in the
aftermath of the financial crisis to drive longer-term rates
even lower - a far cry from where policy is now.
    At the same time, one of the Fed's main goals in cutting
rates is to bring inflation up to the 2% level policymakers
consider healthy, and maybe even higher to make up for long
periods of missing that target. If the Fed succeeds, longer-term
bonds most sensitive to inflation could fall in price, causing
their yields to rise. Because U.S. mortgages are benchmarked to
those longer-term bonds, rates could rise again. (tmsnrt.rs/2Ml82U2)
    For many consumers, the obstacle to buying a house has not
been mortgage rates, but stricter lending standards that reduced
access to mortgages in the first place. Big price increases and
limited supply have also made housing less affordable. Lower
rates could make housing even more out of reach by spurring
demand, driving prices even higher.
    Financing for new cars might be a different story, though,
especially given the large role of automakers themselves in the
car loan business. Those businesses have an incentive to
increase lending to support the auto market. (tmsnrt.rs/2yo9EEj)
    Savers, meanwhile, have been rewarded in recent months for
shopping around for higher-yielding savings accounts and
certificates of deposit. Thanks to increased competition, some
online banks have been pushing yields up for those products even
with the expected rate cut.              
    That could change if the Fed is embarking on a prolonged
series of rate cuts, as some investors are betting. But the
biggest factor could still be overall competition between
financial institutions for savers' money, said Morningstar Inc
analyst Eric Compton. (tmsnrt.rs/2ynqQto)
    Consumers, however, are in a much better place than they
have been in years, by some measures. They have higher take-home
pay, lower debt and better credit scores than during the
financial crisis. "You've got consumers that are pretty healthy,
savings rates are pretty good," said Neal Van Zutphen, president
of Intrinsic Wealth Counsel Inc, a financial planner. "They're
taking advantage of this anticipatory drop in rates." (tmsnrt.rs/2yr8hVr)

 (Reporting by Trevor Hunnicutt in New York and Jason Lange in
Editing by Leslie Adler)
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