Last updated on May 13th, 2020
FOMC statement: No federal funds rate change – what this means for you
The Federal Open Market Committee concluded its first meeting for the year. The FOMC announced on January 29th that the current target range of 1.50% to 1.75% will continue into the first quarter of 2020. The U.S. economy has continued its longest expansion on record, and the decision to leave the Federal Reserve’s rates intact is largely attributed to this expansion. The Committee is cited as depicting the economy “rising at a moderate rate.” This is despite a slight downgrade in household spending, which the Committee described as “strong” after December’s meeting. Now, it is designating spending as “moderate.”
What is the Federal Open Market Committee?
The Federal Open Market Committee determines United States monetary policy. Headed by the Federal Reserve System, the Committee’s current chairman is Jerome Powell. U.S. law charges the Committee to oversee the nation’s open market operations. As such, it supervises the buying and selling of United States Treasury securities. The FOMC also makes important decisions about interest rates. Such decisions affect the growth of the United States money supply.
No Prime Rate Change
Although the FOMC doesn’t directly set the Prime Rate, banks use its federal funds rate target as part of the criteria to decide their Prime Rate. It’s likely that banks won’t adjust their rates, as the federal funds rate hasn’t changed since the previous Committee meeting. The federal funds rate is not actually the rate that consumers pay. However, it still has an effect on consumer borrowing and savings. Consumer APRs will rise and fall whenever banks adjust their Prime Rate based on announcements from the FOMC. The target set by the Committee for the federal funds rate also has an impact. No change means that ordinary Americans can continue to pay down debt and boost savings. Conversely, those focusing on saving money will be relieved that there have not been further rate cuts. Such decreases might lower the yields on interest from savings accounts and certificates of deposit. Likewise, borrowers would see credit card, auto loan, and mortgage rates fall. Here’s how best to take advantage.
Related Article: The Fed Met Yesterday: Here’s What Happened
Pay Down or Eliminate Your Debt
Many Americans hold debt from credit cards and loans. Credit cards employ a variable rate which issuers adjust based on the Prime Rate. Banks pay close attention to announcements from the FOMC, and the federal funds rate is one of the factors that banks use to determine the Prime Rate. This means that an adjustment to the Fed’s target rates can have a direct impact on credit card interest charges. Typically, if the Fed raises or lowers its short-term rates, consumers can expect to see a similar rise or fall to the Prime Rate. In addition, credit card APRs will reflect these changes. Since these rates have not changed, consumers should consolidate their credit card debt to a single, low-rate credit card. Another option to consider is a credit card with an introductory APR period. Consumers using a credit card with an introductory 0% interest rate to pay down their debt will see their savings add up. This is even if the federal funds rate causes the Prime Rate to rise later this year. This is also a good opportunity to refinance a long-term fixed mortgage. If you purchased a home last year, you might consider refinancing at a lower rate. This will put money back into your pocket thanks to reduced interest.
When is the Next FOMC Meeting?
The next scheduled Federal Open Market Committee meeting will be from March 17th to March 18th, 2020. For a full list of the year’s scheduled meetings, visit the FOMC’s website. BestCards.com’s team of industry experts brings you insight, analysis, and detailed reviews to help you navigate the world of credit. We have up-to-date credit card news and comprehensive, impartial coverage of the latest card offers that will help you find a credit card. Read on and find a card that’s the right fit for you, no matter your financial goals. Browse our in-depth reviews and discover the best card for you.