Question : How does the interest rate cuts by the federal government affect the USA?
i read the federal government is going to cut the interest rate again. what interest rate are they cutting? how would it affect me in the USA? What does the rate cut do?
- asked by adamc44
All Answers:
Answer #1
The PRIME rate. Which means this:People canrefinance their homes and get a lower ratePeoplecan get lower loans on their carsPeople can getlower interest rates on their credit cards.All ofthese things increase consumer spending andconsumer income. Does this help?
- answered by Dippin Dots of East Lansing
Answer #2
The previous answer isn't quite right:The Fedcontrols the Fed funds rate, which is the rate atwhich the Fed makes short term loans to largebanks and such. The PRIME rate is set byindividual banks and is usually 3% higher than theFed funds rate.An interest rate cut by the Fedmakes it easier for large banks to borrow money,so they can turn around and loan it to someoneelse. It doesn't directly affect mortgage rates,and most banks are offering fixed rate mortgagesat well under prime already. (As of last week,Bank of America was offering 30 year fixed rateloans at 6.00% with two points). It might affectvariable rate mortgages that are based on theprime rate.Now, the down side: Reductions ininterest rates are what is driving down the USdollar more than anything. Investors know thatthey can do better buying Euro or UK Pounddenominated bonds, That is going to make allimported goods, including oil, more expensive. Italso makes American goods cheaper abroad, whichhopefully helps American industry.
- answered by I. B. Zoxx
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