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The Federal Reserve has stepped back from interest rate hikes so far this year, repeatedly adopting an accommodative approach to monetary policy in the face of growing fears of an economic slowdown.
But if this decision has been applauded by investors and by Wall Street, does it mean exactly for your personal finances?
The federal funds benchmark rate – which US central bank decision makers voted to raise four times in 2018 – can affect consumers by raising borrowing costs. That includes things like auto loan rates and 30-year fixed mortgage rates; even a slightly lower rate for both can mean thousands of dollars of savings for consumers.
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For consumers, this can be both good and bad news, according to Curt Long, chief economics officer and vice president of research at the National Association of Credit Unions Credit Association.
"It depends in some way on their side of the fence," he told FOX Business on Thursday. "If you potentially become a borrower in the near future, the fact that the Fed seems determined to be patient, in its words, is probably good news. This means that rates will likely remain lower than they would otherwise have been. On the other hand, if you are an investor, this might not be good news for you. "
This is because some banks and credit unions will increase their savings rates during Fed hikes, giving consumers a good opportunity to earn more on their savings.
However, the correlation is not so straightforward: the Fed raises the cost of borrowing for banks, which in turn passes on to consumers. In 1977, the Congress instructed the central bank to promote "maximum employment, production and purchasing power" by keeping the cost of goods stable and creating strong conditions in the labor market.
One of the most powerful tools in the Fed's arsenal includes interest rates.
Generally, when policymakers try to increase consumer spending, they lower interest rates to lower the cost of borrowing (during the 2008 financial recession, for example, the Fed lowered it to zero and did not increase it until 2015). Conversely, to avoid inflation and cool the economy, it will be necessary to increase rates to increase the cost of borrowing.
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In general, the Fed tries to keep a federal funds rate between 2% and 5%. In January, the Federal Open Market Committee decided to keep it between 2.25% and 2.5% – and said it was unlikely to be changed in a context of geopolitical unrest, such as uncertainty about Brexit and the trade war between the United States and China.
"We are still seeing a sustained expansion of economic activity, good working conditions and inflation close to 2%," Fed Chairman Jerome Powell said at a press conference on Monday. January. "But cross currents suggest less favorable prospects."
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