USA Today - 31.10.2019

2B z THURSDAY, OCTOBER 31, 2019 z USA TODAY MONEY

These Fed interest rate cuts are start-
ing to add up, lowering costs for many
Americans who use credit cards or take
out loans while squeezing savers.
The Federal Reserve lowered its
benchmark interest rate Wednesday by
a quarter percentage point for the third
time in the past three months. The move
is likely to further trim borrowing costs
on credit cards, home equity lines, ad-
justable-rate mortgages and auto loans.
The latest reduction, to a range of
1.5% to 1.75%, undoes just a third of the
Fed’s nine rate hikes from late 2015
through last year. But the rate-slicing
campaign is starting to make a differ-
ence.
“The cumulative effect is growing,”
says Greg McBride, chief financial ana-
lyst at Bankrate.com.
And while falling rates aid borrowers,
they also nudge down bank savings
rates that had just started providing de-
cent yields after years of paltry returns.
That’s frustrating to seniors and others
on fixed incomes.
“They’re trying to stimulate the econ-
omy but it’s kind of like a tax on savers,”
says Richard Barrington, senior finan-
cial analyst at MoneyRates.com, a
banking and consumer financial site
owned by QuinStreet.
Barrington also questions whether
the Fed’s wary economic outlook and
rate cuts will prod some banks to pull
back lending, making it tougher for low-
er-income, higher-risk borrowers to ob-
tain loans or ultimately pushing up rates
for those households.
A look at how a Fed cut could affect
these products:

Credit cards

Credit card rates are generally tied to
the prime rate, which in turn is affected
by the Fed’s benchmark rate. While the
rate eventually should drop by about a
quarter percentage point, it likely will
take two to three months, McBride says.

The Fed’s prior two rate cuts since

July have pushed down average credit

card rates to 17.57% from 17.85%, Bank-

rate says, lowering the minimum pay-

ment on a $5,000 credit card balance by

$1 to $2 a month. Another quarter-point

drop trims the payment by an additional

$1 a month, offsetting just a small part of

the $9 in increases already enacted.

Home equity lines

Most home equity lines of credit, or

HELOCs, also track the prime rate. The

two prior Fed cuts since July lowered

the average HELOC rate from 6.73% to

6.23%, shaving the monthly payment

on a $30,000 home equity line of credit

by $12.50, according to Bankrate.

A third reduction Wednesday, which

should show up in HELOC rates in a

month or two, pares rates by another

quarter point, or $6.25, bringing the to-

tal savings from the three Fed moves to

nearly $20, McBride says.

“Today’s Fed rate cut will soon make

it less expensive to fix up your home as

sellers prepare for the 2020 home buy-

ing season,” says NerdWallet analyst

Holden Lewis.

Adjustable-rate mortgages

Unlike credit cards and HELOCs,

rates on adjustable-rate mortgages are

modified annually. So the impact of the

Fed’s rate cut, and any more on the hori-

zon, may hit all at once at your next

scheduled loan adjustment – which is

what happened when rates were rising.

A percentage-point cut in the Fed’s

key short-term rate over 12 months – as-

suming the Fed lowers rates again with-

in months – likely would reduce adjust-

able-rate mortgage rates by a half per-

centage point because they’re also af-

fected by other factors. It would reduce

the monthly payment on a $200,

mortgage by $56, says Tendayi Kap-

fidze, chief economist at LendingTree.

Fixed-rate mortgages

The Fed’s key short-term rate affects

30-year mortgages – the most common

home loan – and other long-term rates

only indirectly. Those rates more closely

track inflation expectations and the

long-term economic outlook, and have

already fallen substantially in recent

months as concerns about the economy

and low inflation have grown. The aver-

age rate has dropped to 3.75% from

4.86% a year ago, according to Freddie

Mac, though it has edged up recently on

easing trade tensions and signs that in-

flation may be picking up.

Auto loans

When the Fed was raising rates, the

higher borrowing costs didn’t always get

passed to car buyers because manufac-

turers offered discounted financing.

Now that vehicle sales have slowed,

automakers are competing even more

vigorously with each other. As a result,

some lenders will likely fully pass along

Wednesday’s Fed rate cut to car buyers

within weeks, though the average drop

may not reflect the entire reduction.

Student loans

Many private student loans come

with variable interest rates that follow

the prime rate. When the loan rate ad-

justs depends on what’s written in your

loan terms. For instance, your monthly

payment will decrease for those on a

regular payback schedule. But if you’re

on an income-repayment plan, your

monthly payment won’t change, but a

lower portion will go toward interest

rather than principal.

Federal student loans have a fixed in-

terest rate set by Congress and are not

affected by the Fed’s move.

Bank savings rates

Bank customers who finally have

started to benefit from higher savings

rates could see some of those gains tem-

pered. Rates on one-year and longer-

term certificates of deposits began edg-

ing down in anticipation of the Fed’s

July rate decrease, says Ken Tumin,

founder of DepositAccounts.com.

Banks move quickly on such longer-

term accounts because they don’t want

to get stuck paying higher returns for ex-

tended periods when rates are falling,

McBride says.

How Fed rate cut affects your wallet

Reductions starting to

add up for the consumer

Paul DavidsonUSA TODAY

Rates for home equity lines of credit have been falling.ELISE AMENDOLA/AP

credit cards, home equity lines of credit
and adjustable-rate mortgages but also
pinching seniors and others who were
finally benefiting from higher savings
account yields.
Stocks advanced in the wake of the
Fed’s policy decision. The Dow Jones In-
dustrial Average rose about 70 pointsto
27,148, around 3 p.m. ET on Wednesday.
The S&P 500 index was virtually flat.
Meanwhile, the yield on the 10-year
Treasury was stable at 1.8%.
Fed officials have been starkly divid-
ed over the flurry of rate cuts, with many
supporting them and others preferring
more tempered moves or none at all.
Wednesday’s decrease was viewed as a
milestone because the three reductions
since July now equal the three moves
the Fed made in both 1995-96 and 1998.
As during those periods, Fed policy-
makers have said the economy is per-
forming well and they’re acting to effec-
tively take out insurance against the
risk of a downturn. Fed Chair Jerome
Powell has called the cuts a “mid-cycle
adjustment” rather than a more aggres-
sive effort to lift the economy from a
downturn.
Economists, in turn, have been split
over whether the central bank on
Wednesday would leave the door open
to another rate decrease in December or
hint that it’s pausing to see how the
economy responds to the moves so far.
On the one hand, the economic pic-
ture has brightened somewhat in recent
weeks. The U.S. and China tentatively
reached a truce in their trade war that
would suspend additional tariffs. The
risk of a “hard Brexit” that leaves Britain
without a trade deal with Europe has

ebbed. And long-term Treasury rates

have edged back above short-term

Treasury yields, reversing an “inverted

yield curve” that reflected a dim out-

look.

Those developments provide am-

munition for the Fed’s apparent incli-

nation to take a breather the rest of the

year. Fed funds futures markets reck-

on the odds of another rate cut in De-

cember are just 27%.

“We also see the risks to the outlook

as moving in a positive direction,”

Powell said, citing the developments

with the trade war and Brexit.

At the same time, the global econo-

my remains sluggish and existing tar-

iffs by both the U.S. and China are ex-

pected to curtail economic growth

both through reduced trade and weak-

er business confidence and invest-

ment. Manufacturing, in turn, has

been contracting. And while consumer

spending remains solid, it has slowed

in recent months.

Also, a measure of inflation that

strips out volatile food and energy

items has picked up recently but re-

mains below the Fed’s 2% annual tar-

get, giving the Fed more leeway to trim

rates.

President Donald Trump has re-

peatedly badgered Powell and the Fed

on Twitter for not pushing down rates

more sharply.

Yet the Fed’s about-face on rates

has been head-spinning. Just last

year, the central bank raised its federal

funds rate four times, capping nine in-

creases since late 2015.

That push was aimed at preventing

an eventual spike in inflation and

bringing the rate back to normal after

it hovered near zero for years after the

Great Recession of 2007-09. The re-

cent spurt of rate cuts has reversed

just a third of the hikes.

Fed cuts

Continued from Page 1B

ment, compounding the effects of a

sluggish global economy that has hurt

U.S. manufacturing. And the lift to the

economy from federal tax cuts and

spending increases spearheaded by

President Trump increases is fading.

Wells Fargo predicts the economy will

grow 1.5% the second half of the year,

down from about 2.5% the first half,

and 1.7% in the first half of 2020.

Many economists still foresee an el-

evated risk of recession next year as

Trump heads into a presidential elec-

tion in November.

Consumer spending rises

Consumer spending grew a solid

2.9% in the third quarter, below the

blistering 4.6% pace in the second

quarter but more than expected. Con-

sumers generally have shrugged off

the trade standoff, which has started

to increase retail prices.

Job growth has slowed but the un-

employment rate dropped to a new 50-

year low of 3.5% in September and

wages have been rising about 3% an-

nually, putting more money in shop-

pers’ pockets. The stock market, while

volatile, has notched record highs re-

cently.

Consumption makes up about 70%

of economic activity.

Business investment declines

Business investment fell 3% after

dropping 1% in the second quarter.

Outlays on structures fell 15.3%, partly

because of a pullback in oil drilling

amid lower prices, while spending on

equipment dropped 3.8%.

The trade war has increased the price

of many Chinese imports, including fac-

tory parts and retail products, squeez-

ing manufacturers and retailers. The

impasse, along with feeble growth over-

seas, also has curtailed U.S. exports.

The trade battle also has generated un-

certainty, prompting companies to hold

off on new projects.

Residential investment bounces

back

Construction of new single-family

homes and apartments, along with ren-

ovations, rose 5.1%, breaking a streak of

six consecutive quarterly declines. Av-

erage 30-year fixed mortgage rates have

fallen to 3.75% from 4.86% a year ago,

juicing home purchases and construc-

tion. That has helped offset a shortage

of labor and available lots that have con-

strained builders.

Government outlays increase

Federal, state and local spending in-

creased 2%, down from a 4.8% rise in

the second quarter. Federal outlays rose

3.4% while state and local edged up

1.1%. The $300 billion in additional fed-

eral spending approved by Congress in

early 2018 continued to boost the econ-

omy but the stimulus is expected to lose

steam by late this year.

Trade is a drag on growth

U.S. exports rose 0.7%, following a

5.7% drop in the second quarter.

Trump’s tariffs on $360 billion in Chi-

nese imports have sparked counter-tar-

iffs by China that have curtailed ship-

ments of soybeans, vegetables and oth-

er products. Meanwhile, imports in-

creased 1.2%.

Economy

Continued from Page 1B

Halloween tips for pedestrians

Stick to sidewalks and obey all sig-
nals. If there’s no sidewalk, cling closely
to the curb and walk against traffic.
Avoid walking between parked
cars. “Especially in cul-de-sacs or
dead-end streets where it might seem

safe, it’s still important to” be cautious,

Franks said.

Pick a neighborhood with good

lighting. More than 3 in 4 pedestrian

deaths happen after dark, NHTSA says.

Always put your phone down when

crossing the street. Distracted walking

is believed to be a rising source of seri-

ous injuries for pedestrians.

Halloween tips for drivers

Absolutely no phone use. Distract-

ed driving is extremely dangerous and

may be a primary cause of the spike in

pedestrian deaths, though it’s hard for

researchers to track.

“Heads up, phones down,” Franks

said.

Be alert for kids in places they

might normally be, including roads,

medians or curbs.

Move slowly into and out of drive-

ways. Kids could be walking past with-

out realizing you’re there.

Make eye contact with pedestrians

who are crossing the street.

Prevent young drivers from hitting

the road. Inexperienced drivers and

Halloween are not a good mix.

Halloween tips for homeowners

Make sure your sidewalks are

clear.That way kids won’t be tempted to

walk into the road.

Turn lights on. “We want to make

certain that children are seen,” Franks

said.

Halloween

Continued from Page 1B