What does a rate cut mean for you?

Published 12:00 am Monday, June 30, 2003

Consumers may not know what the &uot;funds rate&uot; is and exactly how the Federal Reserve determines to cut it, but they will know this: Financing big-ticket items such as cars and houses will be cheaper.

&uot;The theory behind a rate cut is to stimulate the economy,&uot; said Adrian Sandel, city president of AmSouth Bank. &uot;It’s to get individuals to borrow money to buy houses, to buy cars. By doing that, that gets the money into the cycle.&uot;

The Fed cut the federal funds rate a quarter point to 1 point, the lowest it’s been in 45 years.

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Sandel noted that house sales and mortgage refinancings are up since the Federal Reserve began an aggressive rate cutting campaign to aid the struggling economy.

Pat Biglane of Concordia Bank & Trust said he expects to see additional refinancings because of the rate cut.

He acknowledged that such a low rate, though, would be an issue for investors.

But Biglane said the Federal Reserve is &uot;keeping an eye on it.&uot;

&uot;They’re trying to spur the economy by encouraging people to borrow funds,&uot; Biglane said.

But how does that work?

For example, Sandel said, if a family refinances a house at the lower rate, the family is paying a lower mortgage bill every month &045; with the same income.

&uot;Now they have more discretionary income,&uot; Sandel said. &uot;That money gets into the economy at the local level&uot; when people use it to buy goods and services.