This week, the Federal Reserve is expected to reduce interest rates again, but analysts warn that the decrease may be negligible, making it hard for consumers to notice any difference.

As the Federal Reserve wraps up its policy meeting on Thursday, most economists predict that it will lower the short-term fed funds rate by a quarter percentage point, bringing it to a range of 4.50% to 4.75%. This would mark the second consecutive rate cut by the Fed, although it’s less than the half-point reduction enacted in September, which initiated the current rate-cutting trend.

Lower interest rates can benefit consumers and businesses by reducing the costs associated with spending and investing. However, analysts indicate that until the Fed implements several rate cuts, most individuals will likely perceive minimal relief.

“Consumers probably won’t notice much difference from this cut,” said Elizabeth Renter, a senior economist at NerdWallet, a personal finance platform. “It’s the gradual decrease that will eventually alleviate financial pressures on households, especially for those with debt.”

What should consumers anticipate this holiday season for credit purchases?

Credit card and personal loan rates remain extremely high, according to Matt Schulz, the chief credit analyst at LendingTree, a comparison website.

“This is particularly true for store-branded credit cards,” he explained. “Anyone looking to apply for these types of cards should be prepared for an annual percentage rate (APR) of around 30%, even if they have excellent credit.”

In November, the average credit card rate fell for the second month in a row to 24.61%, although it remains close to the September peak of 24.92%, according to data from LendingTree.

“Unless the Fed significantly increases the pace of its rate cuts, it will take some time before these reductions translate into noticeable savings on monthly bills,” Schulz added.

To illustrate how credit card payments may vary based on APR, consider a balance of $5,000:

• If you have a 24.61% rate and make monthly payments of $250, it would take 26 months to pay off the debt, accruing $1,501 in interest.
• By reducing the rate to 24.11%, it would still take 26 months, but only $1,459 in interest, saving you $42 in total or about $1.50 monthly.

“Borrowers need to recognize that a drop in interest rates does not equate to low rates,” said Greg McBride, chief financial analyst at Bankrate, another comparison site. “That’s because interest rates are still high and are only likely to fall to ‘less high’ by the end of 2024 and into 2025. The priority remains on paying off high-interest debt, and utilizing balance transfer offers with 0% interest to accelerate repayments.”

Are mortgage rates expected to drop?

While mortgage rates can be influenced by actions taken by the Fed, they are also affected by various other factors such as inflation rates, borrowing costs, bond yields, and associated risks.

Following the Fed’s half-point rate cut in September, mortgage rates actually rose due to strong economic indicators. Metrics related to consumer spending, economic growth, and the labor market have shown resilience.

In a strong economy, investors are less inclined to seek the safety of Treasury bonds, leading to a decline in their prices, which inversely raises yields.

Although a quarter-point reduction by the Fed may not substantially impact mortgage rates or invigorate the housing market, analysts believe that the future direction of both interest rates and mortgage rates is downward.

“Ongoing rate cuts could eventually drive mortgage rates down from their persistently high levels,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, a credit agency. “This may encourage potential homebuyers who have been waiting due to high mortgage rates. Additionally, it could stimulate refinancing opportunities, especially for those who have recently taken out a mortgage at a higher rate.”

Will auto loan rates decrease?

Although the Fed’s interest rate cut may suggest that auto loan rates will decline, analysts caution that this may take time.

“So far, there has been minimal movement in auto loan rates since the Fed’s September reduction,” said Jonathan Smoke, chief economist at Cox Automotive, a research firm.

Similar to mortgage rates, auto loan rates are also influenced by various external factors, including bond yields and delinquency rates.

By the end of 2023, delinquency rates for auto loans rose significantly above pre-pandemic levels after hitting historical lows during the COVID-19 pandemic, as noted by the Federal Reserve in September.

When auto loan rates start to drop more significantly, consumers may consider refinancing in the coming months .

Will the stock market keep rising?

According to some economists, if the Federal Reserve opts for additional rate cuts to bolster the job market, as many anticipate, it could help the stock market maintain its upward trend.

Steven Ricchiuto, the U.S. chief economist at Mizuho Securities USA, mentioned in a report, “The Fed has set a benchmark at a 4.3% unemployment rate, following a significant half-point rate cut in September. This suggests that wage growth may stay around 4%, fostering another year of significant economic growth by 2025.”

A thriving economy is expected to boost income for companies within the S&P 500, enhancing their earnings and stock prices, he elaborated.

Ricchiuto predicts that economic growth will positively impact a broad array of companies next year, as improvements influence various sectors and industries.

This situation could be beneficial for individual retirement accounts like 401(k)s, according to analysts.

Is it still an ideal time for savers?

Even with decreasing interest rates, experts suggest that savers can still find opportunities to prosper.

Bankrate’s McBride commented, “While interest rates soared in 2022 and 2023, their decline in 2024 and 2025 will be gradual, which is more advantageous for savers than for borrowers. Although the earnings from savings accounts, money market accounts, and CDs will decrease, competitive rates will still significantly surpass inflation.”

Nerdwallet’s Renter advises consumers to consider locking in favorable rates on CDs.

“CDs let you benefit from higher returns if you can set aside your funds for a set period,” she stated.

As of November 1, CD Valet identified 295 CDs offering an annual percentage yield of 5% or more across various terms.