It’s been a long, bumpy road to the Federal Reserve’s first rate cut in more than four years, a moment that could be pivotal to the finances of millions of Americans.

The Fed on Wednesday lowered its reference rate by 0.50 percentage points, a key turning point after the central bank implemented a series of interest rate hikes to curb high inflation caused by the pandemic.

The Fed’s first rate cut since March 2020 will provide welcome relief for consumers looking to buy a home or car, as well as those seeking a mortgage. with an expensive credit card debt. The policy shift is also expected to trigger a series of rate cuts later this year and into 2025. This could have lasting effects on mortgage and auto loan rates, but it could also have the downside of reducing the relatively high returns that savers have enjoyed to date.

“It’s been a long marathon — the Fed feels it’s time to cut rates again,” Sara Rathner, co-host of the Smart Money podcast and a personal finance expert for NerdWallet, told CBS MoneyWatch. “Consumers are definitely feeling the pressure. It’s been this double whammy of higher rates and inflation.”

Wednesday’s rate cut offers consumers the chance to take stock of their finances and save money on some of their loans, she said.

How big was the rate cut expected to be?

That was the big debate among economists ahead of Wednesday’s announcement. Some predicted the Fed would cut its benchmark interest rate by 0.25 percentage points — the Fed’s standard cut — while others predicted a whopping 0.50 percentage point cut.

During Wednesday’s press conference, Fed Chairman Jerome Powell said recent economic data, such as a decline in employment coupled with a drop in inflation, convinced Fed officials that a larger cut was needed.

“We gathered all the (data) and came to the conclusion that this was the right thing for the economy and the people we serve,” he said.

“Our patient approach has paid off — inflation is much closer to our target” of an annual rate of 2%, Powell added. “Upside risks to inflation have diminished and upside risks to employment have increased.”

The larger discount will provide some relief for borrowers, albeit relatively modest relief.

“The Fed was behind the curve when it raised rates to contain inflation, and the lesson appears to have been learned,” Greg McBride, chief financial analyst at Bankrate, said in an email. “By implementing a larger half-point rate cut right at the start, the Fed is buying insurance against being behind the curve again.”

More important than today’s action, McBride and other analysts said, is the overall impact on borrowing costs of the expected series of rate cuts in the coming months.

“On its own, a single rate cut is not a panacea for borrowers struggling with high borrowing costs and will have minimal impact on overall household budgets,” he added. “What will be more important is the cumulative effect of a series of rate cuts over time.”

Will the Fed Cut Rates Further in 2024?

Very likely.

The Fed also released its economic forecasts for the coming years on Wednesday, showing that its members are forecasting the median federal funds rate for 2024 at 4.4%. That would represent a cut of about 1 percentage point from its previous level, according to financial data firm FactSet.

Meanwhile, economists surveyed by FactSet predict that rates will be cut at the Fed’s November and December meetings (there is no meeting in October to discuss the rate decision). Moreover, many economists expect the Fed to continue cutting rates through 2025. Most predict that the benchmark rate will be between 3% and 3.5% in May 2025, according to FactSet.

“Our baseline forecast is three consecutive 25 basis point rate cuts in September, November and December, and a final rate of 3.25%-3.5%,” Goldman Sachs analysts wrote in a Sept. 15 research note.

What impact do the interest rate cuts have on mortgage rates?

Mortgage rates have risen along with the Fed’s hikes, with the 30-year fixed-rate bond topping 7% in 2023 and earlier this year. That’s made home ownership financially unfeasible for many potential buyers, especially as home prices continue to rise.

Mortgage rates have already been falling ahead of the Sept. 18 rate decision, partly on expectations of a cut and weaker economic data. The 30-year fixed-rate mortgage is currently at about 6.29%, the lowest rate since February 2023, according to the Mortgage Bankers Association.

But the Sept. 18 rate cut may not lead to a significant further decline in rates, especially if the economy remains relatively strong, Orphe Divounguy, chief economist at Zillow, told CBS MoneyWatch.

“We expect mortgage rates to end the year at about the same level as they are now,” he said.

Asked how Wednesday’s cut might affect mortgage rates, Powell said it was hard to say, since mortgages are often affected by economic factors, such as the labor market and consumer demand. But if economic growth remains on track and the Fed makes additional cuts, “other interest rates in the economy will come down as well,” Powell added.

Still, now could be the right time for homebuyers who were recently sidelined to enter the market, Divounguy added. That’s because housing affordability is improving and inventory is rebounding after a dip in 2022, giving buyers more choice.

Some homeowners with mortgages above 7% may also want to refinance to a lower rate, experts said. For example, a homeowner with a $400,000 mortgage could save about $400 a month by refinancing to a loan at the current rate of about 6.3% versus the peak of about 7.8% in 2023.

“Generally, lenders recommend refinancing if the difference is 1 percentage point or more,” says Smart Money’s Rathner.

What about car loans, credit card debt, and other debts?

Auto loan rates are likely to drop after the rate cut, experts say. And that could convince some consumers to shop around for a vehicle, according to Edmunds, which found that about 6 in 10 car buyers have put off buying because of high rates.

According to Edmunds, the average annual interest rate for a new car loan is currently 7.1% and for a used car it’s 11.3%.

“A Fed rate cut wouldn’t necessarily bring all consumers back into showrooms right away, but it would certainly help get reluctant car buyers back into spending mode, especially when combined with some of the promotional messaging that automakers typically push during Black Friday and through the end of the year,” Jessica Caldwell, Edmunds chief insights officer, said in an email.

The APR on a new credit card offering now stands at 24.92%the highest since LendingTree began tracking new rates in 2019, the financial services website said. As with auto loans, credit card rates are likely to fall after the rate cut.

Still, that probably won’t make much difference for people with a balance, says LendingTree credit analyst Matt Schulz. He calculates that someone with a $5,000 balance and a card with a 24.92% APR could save about $1.50 a month in interest with a 0.50 percentage point discount.

According to experts, it is better to pay off the debt if possible or look for a 0% balance transfer credit card or personal loan, which usually have a lower interest rate than credit cards.

About 4 in 10 Americans carry a credit card balance, according to Federal Reserve data. The average balance is about $6,900, says LendingTree.

What are the implications of a Fed rate cut for savings accounts and deposits?

If there is a silver lining to the rate hikes, it is that savers have enjoyed high rates on certificates of deposit (CDs) and high-yield savings accounts. Some banks have offered APYs as high as 5%, giving Americans a chance to beef up their savings accounts.

But that could now come to an end, Schulz noted.

There is still time for people to take advantage of relatively high rates, even if they fall slightly in the coming months, he added. “I don’t think anyone should expect rates to fall off a cliff immediately,” he said.

However, some experts have predicted that the Interest on top savings accounts could fall by as much as 0.75 percentage points after the Fed cuts rates. However, consumers can still benefit by moving money from a traditional savings account to a high-yield savings account, which can help them build an emergency fund or bolster their savings with higher returns.

As for CDs, Schulz advises people to lock in their rates now, if they can. “Rates are already coming down, and they’re only going to come down,” he said.