Signs of an economic slowdown, including a surprising drop in jobs in August and weaker retail sales, have pushed the Fed to shift from targeting inflation to easing pressure on consumers. With consumers struggling to repay debts following a slow down in the housing market, the Federal Reserve has reduced the discount rate that banks pay to borrow from 5.75% to 4.25%.

The Federal Reserve uses interest rates as a tool to control inflation, raising them when prices threaten to rise too quickly. The rate reduction was the first in three years and was implemented to help prevent a recession.

The financial markets expected a quarter-point cut, but the Fed unanimously agreed that a half-point decrease was necessary to remedy the current economic situation. It’s likely most banks will follow the cut by reducing “prime rates” from 8.25% to 7.75%, lowering the cost of borrowing money and hopefully inspiring new economic activity.

For credit card shoppers, it’s likely credit card rates will decrease as well. Although high-risk consumers probably won’t see any changes, consumer with good credit could see their credit card APR’s drop up to a half-point.

Posted in News & Info

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