Finance

Fed interest rate cuts won’t help your credit card debt

Published

9 months ago

September 1, 2024

Former St. Louis Federal Reserve CEO James Bullard unpacks rate cuts and the labor market on ‘The Claman Countdown.’

Wall Street and Main Street are ready to usher in the fall season with the first interest rate cut since March of 2020, the start of the COVID-19 pandemic, and with this comes the hope of lower borrowing costs.

While it may lower rates for mortgages, auto and personal loans, those carrying credit card debt are likely to be out of luck.

“That’s where the real advice is. Don’t expect the Fed to ride to your rescue”, Ted Rossman, Senior Industry Analyst at Bankrate, told FOX Business. “The change is not going to be that significant. My other big point is that a quarter point, half point, even if credit card rates fell a couple of points, it’s not that much of a difference. Just because rates are so high,” he warned.

Person inserting or removing Visa Credit Card using touch screen credit card payment at a Five Guys restaurant, Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)

CREDIT COUNSELING DEMAND SURGES IN THESE STATES

The average annual percentage rate on standard credit cards is about 20.76%, according to Bankrate, with some in-store retail cards, such as Bloomingdale’s, as high as 31.99%.

Federal Reserve Chairman Jerome Powell, in August at the Kansas City Federal Reserve’s Jackson Hole Economic Symposium, set the stage for a September rate cut.

Jerome Powell, chairman of the US Federal Reserve, second right, arrives for dinner during the Jackson Hole economic symposium in Moran, Wyoming, US, on Thursday, Aug. 24, 2023. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)

FED CHAIR POWELL REVEALS RATE CUT PLANS

“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” he added.

Nearly 70% of market participants are expecting a 25-basis point cut at the September 18 meeting, with a smaller 30.5% forecasting double that, as tracked by CME’s FedWatch Tool, which measures the probability of future rate moves.

Ticker	Security	Last	Change	Change %
M	MACY’S INC.	15.57	-0.00	-0.01%
V	VISA INC.	276.19	+1.85	+0.67%
JPM	JPMORGAN CHASE & CO.	224.80	+2.59	+1.17%
DFS	DISCOVER FINANCIAL SERVICES	138.73	+1.13	+0.82%
COF	CAPITAL ONE FINANCIAL CORP.	146.93	+1.56	+1.07%

As an example, for those carrying a $1,000 balance on a credit card, a 25-basis point rate cut may lower your APR to 20.51% vs. 20.76%, according to Bankrate estimates. The drop in the monthly finance charge would be a paltry $0.21 less. Your minimum payment would like remain unchanged, as outlined by Greg McBride, chief financial analyst, Bankrate.

Even if policymakers stick to an easing cycle, it will still take a few rounds to make a meaningful difference.

401(K) MILLIONAIRES HIT NEW RECORD HIGH: FIDELITY

“The Fed’s going to be much slower, we think, on the way down than they were on the way up,” cautions Rossman.

Rather than wait for the Fed, Rossman suggests exploring other options.

“Maybe get a 0% balance transfer card or take out a side hustle. Cut your expenses. I mean, there’s other stuff you can do, but fed rate cuts, in and of themselves, aren’t going to make a big difference in the credit card world.”

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The Fed will also meet in November and December to round out the 2024 year.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”