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Economists explain how the Fed's rate cut affects Iowans

Economists told Local 5 that rates for car loans and credit cards will come down while mortgage rates will mostly stay the same.

IOWA, USA — The Federal Reserve announced on Wednesday its lowering interest rates by half a percentage point. The last time the Fed cut rates was four years ago and the last time they cut rates this much was in 2008.

Economists told Local 5 that the Fed slashed interest rates because inflation is starting to slow down. They said credit cards and car loans will likely have lower interest rates as a result of the reduction.

“I would expect, especially on short term loans, I would guess it's something like a quarter of a percentage point decrease,” University of Northern Iowa Economics Professor, Bryce Kanago said.

Mortgage rates, which have been going down lately in anticipation of the Fed lowering interest rates, won’t see much of a change.

“You're not likely to see a big reduction in mortgage rates, at least not right away, because those sort of long term rates are less closely tied to these overnight rates,” Iowa State University Economics Professor Emeritus, Peter Orazem said.

However, Iowa could see some job growth which is tied to consumer spending.

“Lowering interest rates tends to raise spending on durable goods,” Kanago said. “We might see some gains in the home construction industry and some gains in other industries in Iowa.”

Kanago believes the Fed interest rate will be cut again before the end of 2024.

“I think if inflation remains low, they'll reduce the interest rate,” Kanago said.

Orazem isn’t so sure.

“There are at least some people who think this will be the first of many rate reductions,” Orazem said. “I'm a little bit less certain that that's going to happen.”

If the Fed reduces rates a few more times, both economists predict mortgage rates will likely come down then.

Metro realtor Erika Hansen also told Local 5 that she expects more homes will be on the market as a result, giving buyers more options.

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