What a Lower Interest Rate Means to You

In a move that thrilled Wall Street and sent stocks soaring, the Federal Reserve cut its key interest rate for the first time in four years in a bid to ensure that the softening economy doesn’t slide into a recession. In the short term investors have been hoping a rate cut would improve recently volatile stock market conditions.  The immediate impact seems to be doing just that.  Many stocks have shot up this afternoon.

The central bank cut its key federal funds rate from 5.25% to 4.75%. It also cut the discount rate from 5.75% to 5.25%. The two cuts were larger than most Fed watchers had expected; they’d seen the federal funds rate moving only to 5%.

With lower interest rates on everything from student loans to credit cards consumers will have more disposable income to spend.  More importantly the lower interest rate could improve consumer confidence that will give the economy the shot in the arm that it needs.