ALBUQUERQUE, N.M. – The Federal Reserve announced it is cutting its key interest rate by half a percent. This will impact mortgage rates, car loans and credit cards. 

Half a percent may not sound like very much, but there could be more cuts to follow. The fed says it will watch how the economy responds, and go from there. 

“This decision reflects our growing confidence that within our recalibration to our policy stances, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainable down to 2%,” said Jerome Powell, chairman of the Federal Reserve.

The whole point of this federal interest rate cut is to shift more money back into the economy by making it cheaper to borrow money.

When you want to buy a car or a house, you usually need to borrow money from a bank. That bank essentially charges you a fee for borrowing, and that’s determined by the interest rate.

Banks are required to keep a certain amount of money on hand, so sometimes they need to borrow money from other banks, and that’s not free either.

This is where the federal interest rate comes in. The feds essentially decides how much banks charge each other to borrow money.

So when the fed raises its interest rate, the banks end up raising their interest rates, making that house or car you want to buy more expensive. But it works in the other direction too, and that’s why Tuesday’s announcement is a big deal.

UNM Finance Professor Reilly White says the feds strategically raised its interest rates over the past few years to keep more money tied up in the banks, slowing down the economy and inflation.

But it’s slowing down too much, so the feds are lowering its interest rate, pressuring banks to do the same thing, allowing more money to return to the economy also giving it a boost.

“It increases incentives for factories to build stuff, for people to be hired, for companies to grow, and that has a positive benefit to the economy,” said White. “Things like mortgage rates, their credit card rates and other things. It puts us on a trajectory to lower rates, for sure, but it’s not going to happen overnight.” 

The big focus is on home loans or mortgages, that’s where most Americans are likely going to feel this rate cut. 

But don’t get too excited about buying a new home in Albuquerque, one local realtor says there’s even more economic factors to consider.

“The good news is, the fed did what we thought it was going to do,” said Austin Wolff, a managing broker of the Lovely Home Company.

Wolff is just about ready to put this home on the market.

“This is a great three-bedroom house in the in a very walkable part of Nob Hill,” said Wolff. 

He says it will be listed for around $340,000, but he doesn’t expect it will stay that low.

“When interest rates go down, there are going to be an influx of home buyers that are going to be jumping back in to the market. So prices are going to likely go up, even though interest rates are going down,” Wolff said. 

Wolff says most banks already knew the fed was planning to cut interest rates anyway.

“They all thought the fed was going to do exactly what it did. So interest rates have already actually adjusted down based on what they thought the fed decision was going to be,” said Wolff. 

It’s a give and take that may not benefit Albuquerque home buyers in the long run.

“The payment might be a little bit lower, but the price is going to be a little bit higher, so ultimately you just have to buy the house that makes sense for you at the right time,”  Wolff said. 

Wolff says increasing the housing inventory is really the only way to actually bring home prices down.

“That’s what’s happened in Austin, Texas, and that’s really the only market that I’ve seen in America this year where prices have started to trend downward, and it’s because they incentivize new construction in a major way,” said Wolff. 

White says the fed’s announcement could actually provide that incentive in New Mexico.

“Firms who are waiting to invest in projects because they’re waiting for interest rates to lower are now going to start thinking more about that,” said White. 

Economists predict even more federal rate cuts are coming, but White says it’s hard to predict what will happen next.

“The fed is trying something that hasn’t been done successfully in 50 years, that’s raise rates in an economic cycle to control inflation and then lower them gradually in a way that doesn’t result in a recession. And so that is the name of the game for the fed, and it is like threading a needle,” said White. 

The bottom line is interest rates on just about everything are now expected to come down, but it’s going to take a while to really notice the change.