The Federal Reserve yesterday announced an emergency interest-rate cut of one percentage point, bringing the Fed’s target rate nearly to zero for the first time since its 2008-2015 stay at that level following the financial crisis. Below, you can find some key statistics that help illustrate the significance of this rate cut and how it may impact consumers in the face of the coronavirus pandemic, followed by commentary from WalletHub CEO Odysseas Papadimitriou. Here’s how WalletHub projects yesterday’s rate cut will affect consumer financial products:
- Credit Cards: APRs on new credit card offers will decrease by an average of 16 basis points.
- Auto Loans: APRs will decrease by an average of 16 basis points.
- Mortgages: APRs will decrease by an average of 52 basis points.
- Deposit Accounts: APRs will decrease by an average of 32 basis points.
Q&A with WalletHub CEO Odysseas Papadimitriou
Is it a good idea for the Federal Reserve to cut its target rate? “Consumer spending will go down as people stay home because of the coronavirus. That will hit a number of industries particularly hard, such as the service industry, travel providers, live entertainment venues, movie theaters, and more. That in turn could lead to a domino effect, with turmoil in one industry spilling over to another. For example, if a restaurant owner can no longer pay rent, the property owner might not be able to pay its loan, and the bank that made the loan might end up suffering as well.”
Will the House bill for Coronavirus relief passed March 13 be sufficient? “It is a good first step, if it gets through the Senate without significant changes or delays. It is a must that the final legislation includes free coronavirus testing for everyone and covers hospitalization costs for those affected, regardless of insurance coverage,” he said. “Regardless, it looks like we’ll need more legislation after this to further support the economy and affected workers.”
What should businesses be doing to prepare? “This weekend’s Fed rate cut should be a wakeup call for businesses to begin working remotely, if they haven’t already. Companies have two major objectives in doing so: minimizing interruptions to business processes and safeguarding human capital.”
What should consumers do to prepare? “The first thing people should do is follow the advice from healthcare professionals and the CDC. Dr. Fauci knows what he’s talking about. Other than that, now is the time to really start expanding your emergency fund.”
Ed. note: WalletHub is a Washington D.C.-based personal finance website launched in August 2013. It is owned by Evolution Finance, Inc