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How the Federal Reserve interest rate cuts affect your credit card interest rates

Posted at 7:44 PM, Mar 16, 2020
and last updated 2020-03-16 19:45:59-04

FORT MYERS, Fla. — The Federal Reserve slashed interest rates to zero on Monday.

An aggressive step to protect the economy from the impact of the coronavirus outbreak.

But what does this mean for you?

Fox 4 spoke with a finance professor from Florida Gulf Coast University to get you those answers.

"For everyday consumers in the short term, it’s not going to mean a whole lot," said Dr. Tom Smythe.

The biggest impact you could see right away is the interest rates of your credit cards go down.

"That rate ought to drop by about a full percentage point almost immediately," said Dr. Smythe.

Dr. Smythe says the move to slash interest rates is mainly to make sure that as many companies as possible can continue to operate.

"The feds action really was to try and create confidence in the markets, but also to demonstrate that they are willing to provide funding to banks and others so that they provide lending to companies that are being impacted by the Coronavirus,” said Dr. Smythe.

Smythe says you should think of the ability to borrow money like oil in your vehicle — borrowing keeps the economy moving.

“Companies need that kind of lubrication in the form of money because they have to buy inventory before they sell things," said Smythe. "That takes time and during that time they’ve got to pay their suppliers and pay their employees."

Smythe believes the rates will not be going up in the near future.

“I would say probably absolutely not before the end of the year, so we may see those lower rates trickle down to things like car loans, mortgages and things like that,” said Smythe.

This includes people looking to refinance.

“There’s no reason to not start reaching out to lenders and stuff like that to see if they’re dropping rates, but it might take a little bit of time to filter through the economy," said Smythe.

Smythe says it's important to keep in mind that banks and lenders can’t keep lowering rates closer and closer to zero.

“Banks don’t want to just jump on the lowering rates bandwagon because once they lower that rate, if or when rates start to rise it’ll hurt their profitability and the key to that is they depend on that profitably to provide loans not just now but in the future,” said Smythe.

Smythe say he believes the recovery from this will be quicker than normal because the underlying fundamentals of the economy were strong prior to this economic impact.