Research and Statistics

Surprise rate cut aids markets, but no credit card rate relief


Federal interest rate cut may not affect the federal funds rate for some time. (Aug 2007)

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

In a surprise move Aug. 17, the Federal Reserve cut a key interest rate, but it’s unlikely that rate cut will immediately filter down to credit card users.

The Fed cut its primary credit discount window rate a half point to 5.75 percent. The “discount window” rate is the one the Fed charges to make direct loans to banks. But it left unchanged the most important rate to consumers — the federal funds rate. The latter rate is what banks use to set their prime rates. Slightly more than half of credit cards tie their interest rates to the prime rate.

The federal funds rate has been stuck at 5.25 percent for more than a year, and credit card rates have stalled as well. The weekly survey of credit card rates, for instance, found the popular rewards cards rates stuck at 13.66 percent for more than a month.

Friday’s action was described as temporary, and was aimed at soothing recently volatile markets, not at consumers. In a statement, the Fed said it took the unusual step “to promote the restoration of orderly conditions in the financial markets.” A meltdown in the subprime market had created a business credit crunch; the lower rate and changes in terms will make it easier for financial markets to continue operations.

The Fed’s next regular meeting is Sept. 16. Analysts speculate that if problems in the financial markets persist, pressure will increase on the Fed to cut the federal funds rate, which will directly affect consumers with loans tied to that rate, including credit cards and home equity lines of credit.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Research and Statistics

FTC blocks card issuer from reaching into consumers’ accounts

The FTC has blocked prepaid credit card company EDP after complaints of unauthorized withdrawals.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more