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--:-- Ryan Knutson: This week, the American economy hit a major turning point. And all eyes were on Fed Chair Jerome Powell today as he announced the first interest rate cut in the U.S. in four years.
--:-- Jessica Mendoza: The Fed opting to cut rates by a half a percentage point. Millions of Americans now looking ahead to lower borrowing costs.
--:-- Ryan Knutson: Central Bank also hinted at further reductions later this year. The move will bring down the cost of borrowing, including on mortgages and credit cards in the U.S.
--:-- Jessica Mendoza: The Federal Reserve cut interest rates by half a percentage point. Welcome news to a lot of people. People like Claire and Alessandro Segala.
--:-- Ryan Knutson: As a personal level, I hope that that means that we will have more money for us and that we can put it towards our future.
--:-- Jessica Mendoza: The Segalas live in Seattle. And recently, they were in the market for a new home.
--:-- Ryan Knutson: We wanted a townhome with a garage. We definitely wanted three bedrooms. We both work from home. And we would like to have a family one day.
--:-- Jessica Mendoza: We wanted to be in a walkable location. We don't have a car, so location was probably most important to us.
--:-- Ryan Knutson: Something just caught me there. You said you have no car, but you wanted a garage.
--:-- Jessica Mendoza: Yes, yes. So we might get one in the future, but we also wanted a garage for storage. And that has been awesome for us.
--:-- Ryan Knutson: In February, the Sagalas found their dream townhome, garage and all. But there was a catch. Their mortgage rate was really high, almost 7%.
--:-- Jessica Mendoza: They bought the house anyway, even though it was more expensive than they wanted. Their plan was to refinance their mortgage as soon as the Fed cut rates.
--:-- Ryan Knutson: There were rumors that the Fed would start cutting rates. We didn't know when exactly, but we knew that sometime this year, the likelihood of that happening was relatively high.
--:-- Jessica Mendoza: Now, the Sagalas are shopping around for a better mortgage rate. I would like at the very least 6%, but we're going to try going for something as low as we can.
--:-- Ryan Knutson: If we can refinance in the next two, three months and get this 1% reduction in interest rate, we are looking into a reduction of monthly payments of approximately $1,000 a month, which for us will be quite significant.
--:-- Jessica Mendoza: Yeah. What would you do with that extra grand amount?
--:-- Ryan Knutson: Mostly saving it and investing towards the future. Maybe a car for your garage?
--:-- Jessica Mendoza: That too. That too.
--:-- Ryan Knutson: The Fed's decision to cut interest rates was unequivocally good news for the Segalas. But what if you're not buying a home? What if you have other kinds of debt? Or maybe you don't have debt, but you're getting squeezed by the high cost of rent, groceries, and everything else.
--:-- Jessica Mendoza: Will the Fed's interest rate cuts help your finances? Welcome to The Journal, our show about money, business, and power.
--:-- Ryan Knutson: I'm Jessica Mendoza. It's Friday, September 20th.
--:-- Ryan Knutson: Coming up on the show, who will and won't benefit from this week's rate cuts.
--:-- Ryan Knutson: CRM was supposed to improve customer relationships. Instead, it's shorthand for can't resolve much.
--:-- Jessica Mendoza: Which means you may have sunk a fortune into software that just bounces customer issues around but never actually solves them.
--:-- Ryan Knutson: On the ServiceNow AI platform, CRM stands for something better.
--:-- Jessica Mendoza: With AI built into one platform, customers aren't mired in endless loops of automated indifference.
--:-- Ryan Knutson: They get what they need, when they need it.
--:-- Ryan Knutson: Bad CRM was then. This is ServiceNow.
--:-- Jessica Mendoza: Optimism isn't sunshine and rainbows. It's fixing things.
--:-- Ryan Knutson: Changing the way we fix things. It's running the world on smarter energy.
--:-- Jessica Mendoza: Because if optimism never stops, then change can't either.
--:-- Ryan Knutson: GE Vernova, the energy of change.
--:-- Jessica Mendoza: It's not often that the Federal Reserve cuts interest rates. For finance nerds, like us at the Wall Street Journal, it's a bit like early Christmas.
--:-- Ryan Knutson: Which I guess makes Fed Chair Jerome Powell Santa?
--:-- Jessica Mendoza: Here's Santa on Wednesday making the big announcement.
--:-- Ryan Knutson: Today, the Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by a half percentage point.
--:-- Jessica Mendoza: This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.
--:-- Ryan Knutson: What Powell is saying here is that inflation has been tamed at least for now.
--:-- Jessica Mendoza: And so the Fed is lowering interest rates. This is a reversal.
--:-- Ryan Knutson: For the last two years inflation has stubbornly refused to slow.
--:-- Jessica Mendoza: It was in this now overly done metaphor the Grinch of the economy.
--:-- Ryan Knutson: To fight it, the Fed aggressively raised interest rates.
--:-- Jessica Mendoza: First, in March of 2022.
--:-- Ryan Knutson: Today, in support of these goals, the FOMC raised its policy interest rate by one quarter percentage point. And then a bit more. And then even more.
--:-- Jessica Mendoza: The Fed kept raising rates until it hit a peak range of between 5.25 and 5.5 percent.
--:-- Ryan Knutson: That's the highest it's been in over two decades.
--:-- Jessica Mendoza: And while that strategy seems to have brought inflation down, the high rates have also caused pain for some consumers.
--:-- Ryan Knutson: Over the past couple of years, as the Fed has raised interest rates, what did that mean for the economy, broadly?
--:-- Jessica Mendoza: When the Fed raises interest rates, they basically make it more costly to borrow money.
--:-- Ryan Knutson: That's our colleague David Oberti. He covers financial markets.
--:-- Jessica Mendoza: Things like mortgages, things like auto loans, credit card rates, any way in which a consumer or a business borrows money, that has become more expensive over the course of time.
--:-- Ryan Knutson: And to sort of step back and sort of describe this in a more philosophical sense, interest rate hikes more or less shift power within the economy from borrowers to savers.
--:-- Jessica Mendoza: So it creates winners and losers to some respect.
--:-- Ryan Knutson: Okay, can you break that down?
--:-- Jessica Mendoza: Who are the winners of this economy?
--:-- Ryan Knutson: If you're one of those higher earning people, people who have a lot of money in the bank, you know, it's hard to beat this moment in time for you.
--:-- Jessica Mendoza: You can buy a treasury bond that returns a really safe yield over the next two or five or 10 years.
--:-- Ryan Knutson: You can get a 5% yield from money market funds for essentially doing nothing with your money.
--:-- Jessica Mendoza: And that has really boosted overall wealth in the United States.
--:-- Ryan Knutson: Okay, so those are the winners. What about the losers?
--:-- Jessica Mendoza: So if you need to borrow money, if you're a business that has needed to invest in new equipment, if you're someone who uses a lot of credit cards to pay for your groceries, if you've wanted to buy a new house or a new car, this has been pretty painful for you because all of that costs more now than it did just a couple of years ago.
--:-- Ryan Knutson: David says that those who are accumulating wealth, the winners of high interest rates, they're driving consumer demand, using their extra cash to buy cars or go on vacation.
--:-- Jessica Mendoza: As for those who aren't building wealth, they're also spending a lot because prices are still really high.
--:-- Ryan Knutson: So a growing number of them have to rely on credit cards to make purchases, and some are falling behind on their payments.
--:-- Jessica Mendoza: Over the last year, around 9% of credit card balances turned delinquent, the highest rate in over a decade.
--:-- Ryan Knutson: Like I said, borrowing costs have gone up over the last couple of years, and particularly in early 2024, the rates of delinquency have really jumped at a way that has sort of stunned some analysts and economists.
--:-- Jessica Mendoza: So there are some people out there, depending on their situation, that have been really hurt by this moment.
--:-- Ryan Knutson: The combination of inflation and borrowing costs has really, really hammered them.
--:-- Jessica Mendoza: Another thing that's worried the Fed as interest rates stayed high is that employment is weakening.
--:-- Ryan Knutson: Some businesses have gone through layoffs and others aren't hiring as much.
--:-- Jessica Mendoza: Maybe they're holding on to workers more so than they were, or maybe their business just isn't doing as well, so they don't see any growth in the horizon, so they're hiring less.
--:-- Ryan Knutson: Whatever the case is, people are slowing down a bit.
--:-- Jessica Mendoza: The Fed keeps a close eye on job growth as a measure of how much the economy is slowing down.
--:-- Ryan Knutson: And so what that suggests to the Fed and to economics watchers is that, you know, if the Fed sort of dials it back just a little bit, it makes it a little bit easier for businesses and consumers to invest in a new house or new machinery or maybe a new business plan for next year.
--:-- Jessica Mendoza: Then maybe that can sort of moderate some of those recently concerning signs that we've seen, if not just continue some of the growth that we've had over the last couple of years or so.
--:-- Ryan Knutson: The Fed hopes that cutting interest rates will spur economic growth.
--:-- Jessica Mendoza: But some people won't see the upside for a while.
--:-- Ryan Knutson: That's after the break.
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--:-- Jessica Mendoza: That's Indeed.com slash journal right now and support the show by saying you heard about Indeed on this podcast.
--:-- Ryan Knutson: Indeed.com slash journal.
--:-- Ryan Knutson: This episode is brought to you by Walmart.
--:-- Jessica Mendoza: Did you know that Walmart is one of Fortune 100's best companies to work for in 2025?
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--:-- Jessica Mendoza: In fact, 75% of Walmart management started in hourly roles.
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--:-- Ryan Knutson: To better understand who will and won't benefit from rate cuts, I played a kind of game with our colleague David Oberti.
--:-- Jessica Mendoza: I want to run through some other costs and then maybe you can tell me how Fed cuts will or won't impact them.
--:-- Ryan Knutson: Sure. So rent has been going up. Will renters see rent go down?
--:-- Jessica Mendoza: Go down, not necessarily. But the hope is that the subsequent increases will be slower.
--:-- Ryan Knutson: And I know that's not what a lot of people want to hear, right?
--:-- Jessica Mendoza: And that sucks. They're clicking off already. They're like, ah.
--:-- Ryan Knutson: Everybody who lives in like a big city like hates this, you know?
--:-- Jessica Mendoza: What about prices in grocery stores? What would the effect be?
--:-- Ryan Knutson: The sticker shock at a grocery store is very, very real.
--:-- Jessica Mendoza: And that is unfortunately one of the things that probably won't change once the Fed starts lowering rates.
--:-- Ryan Knutson: And what about credit cards, especially people with credit card debt?
--:-- Jessica Mendoza: The federal funds rate makes up a very small portion of overall credit card rates.
--:-- Ryan Knutson: Spoke to a credit analyst recently who said as a rule of thumb, for a person who has $10,000 of credit card debt to carry over every month, a quarter point percentage cut by the Fed could only add up to maybe something like $2 off of their minimum payment.
--:-- Jessica Mendoza: Granted, that's better than paying more. But until the Fed starts more significantly cutting down rates, credit cards aren't going to have a really huge impact and sort of, you know, lessening the cost impact on a lot of people.
--:-- Ryan Knutson: I spoke to a couple who aren't likely to see the benefits of these rate cuts, at least not right away.
--:-- Jessica Mendoza: Clarissa and Michelle Cotterbarin have been married for seven years.
--:-- Ryan Knutson: They own a small restaurant called Eurasia in Prescott, Arizona, a small town north of Phoenix.
--:-- Jessica Mendoza: Michelle is the chef.
--:-- Ryan Knutson: Clarissa manages the business and marketing.
--:-- Jessica Mendoza: I can't cook to save my life, so I married a chef.
--:-- Ryan Knutson: We came up with a concept for a Eurasian restaurant, which means that we feature European and Asian dishes.
--:-- Jessica Mendoza: You know, him being European, French, and me being Asian, Filipino.
--:-- Ryan Knutson: It also made sense that it was a melding of our two cultures.
--:-- Jessica Mendoza: So Eurasia is all about opening minds, broadening tastes, and really embracing cultures.
--:-- Ryan Knutson: I saw you guys have sisig, which was exciting.
--:-- Jessica Mendoza: It's very popular.
--:-- Ryan Knutson: The restaurant was a hit when it first opened in 2022.
--:-- Jessica Mendoza: But over the past few months, the Cotabarons have struggled financially, in part because of high interest rates.
--:-- Ryan Knutson: As inflation ramped up, consumers across the country shifted their spending.
--:-- Jessica Mendoza: Instead of dining out so much, they turned to fast food or splurged more at grocery stores.
--:-- Ryan Knutson: The Cotta Barons say they've seen that trend firsthand.
--:-- Jessica Mendoza: They also saw their customers go to competitors with lower prices.
--:-- Ryan Knutson: Even the usually busy summer season didn't bring in customers.
--:-- Jessica Mendoza: We spoke to people, locals, and even people that would come here during the summer that are from Phoenix, and they were saying, the past years, it was a lot busier, we saw in town.
--:-- Ryan Knutson: It's not as busy. Even the tourists are not coming to Prescott as much as they were before.
--:-- Jessica Mendoza: The slowdown was bad enough.
--:-- Ryan Knutson: On top of that, their expenses went up because of inflation, like everyone else's.
--:-- Jessica Mendoza: And then the Cotabarons got hit with a major unforeseen expense.
--:-- Ryan Knutson: In June, a truck ran into their building and damaged the restaurant's exhaust fans.
--:-- Jessica Mendoza: That meant the restaurant had to shut down until repairs were made, which was a problem because they were hosting a special event that weekend, and they really needed the business.
--:-- Ryan Knutson: We were doing a Filipino buffet, and we had 70 reservations, if I remember well, and we had two days to get up and running again.
--:-- Jessica Mendoza: We did the impossible, and I took care of finding the two brand new fans, which came from California and we pulled it off.
--:-- Ryan Knutson: And 36 hours later we were up and running again.
--:-- Jessica Mendoza: That was literally an impossible feat. I think the good Lord helped us out there.
--:-- Ryan Knutson: How did you pay for the replacement and the shipping fee and all of that?
--:-- Jessica Mendoza: Thank you, Visa.
--:-- Ryan Knutson: The couple had to pay for the repairs with a credit card, a card that they've relied on more and more for other expenses.
--:-- Jessica Mendoza: Right now, their credit card balance is roughly $60,000.
--:-- Ryan Knutson: In a bid to survive, the Cotter Barons started a GoFundMe.
--:-- Jessica Mendoza: And they've had to cut employees' hours, picking up the slack themselves, doing the dishes, cleaning up, and working longer hours.
--:-- Ryan Knutson: How much longer do you think you can go on like this?
--:-- Jessica Mendoza: As long as God wills it.
--:-- Ryan Knutson: We're living on week to week now. We are on life support officially.
--:-- Jessica Mendoza: We're both... He's watering up. Excuse me.
--:-- Ryan Knutson: We're both Catholics.
--:-- Jessica Mendoza: We both believe in God.
--:-- Ryan Knutson: And we have, you know, really given it up to God to help us.
--:-- Jessica Mendoza: Michelle and Clarissa hope that with interest rates falling, they'll be able to get a small business loan to consolidate their debt.
--:-- Ryan Knutson: And they hope that improving financial conditions will bring customers back.
--:-- Jessica Mendoza: But our colleague David says that the economy is more like an ocean liner than a speedboat.
--:-- Ryan Knutson: A change in course takes time.
--:-- Jessica Mendoza: Customer habits are slow to change and higher prices aren't going away.
--:-- Ryan Knutson: What does all this that we've talked about say to you about the effect that most people will see with the Fed's rate cut?
--:-- Jessica Mendoza: For most people, this is not going to have a huge impact on your life immediately.
--:-- Ryan Knutson: If you are about to make a big purchase, if you have been waiting to buy a house or trying to get a mortgage or try to refinance a house at which you have a high mortgage rate, a half-point cut might be a big deal to you, depending on your financial situation.
--:-- Jessica Mendoza: At the same time, I spend a lot of time talking to low-income and poor people across the country, and they essentially say it's not just that they have high housing costs or high guest lien costs or high credit card fees, etc.
--:-- Ryan Knutson: It's that all of those things are happening at once.
--:-- Jessica Mendoza: And that is what is essentially squeezing their finances and really taking a big chunk out of their checkbook every month.
--:-- Ryan Knutson: The thing is that we're a big country. Or a big economy, there's a lot of people out there who are trying to buy houses or refinance cars who have credit card debt.
--:-- Jessica Mendoza: And what the Fed is hoping is that all of those little impacts over the course of time will add up.
--:-- Ryan Knutson: They will make people feel a little bit better.
--:-- Jessica Mendoza: They'll make businesses work a little bit better.
--:-- Ryan Knutson: They'll make the economy function a little better.
--:-- Jessica Mendoza: And hopefully all while doing so as inflation continues to come down.
--:-- Ryan Knutson: So the hope among all of this is just that The last two years have been very difficult, but they're very close to pulling it off.
--:-- Jessica Mendoza: In the next few months, we'll really determine whether that happens.
--:-- Ryan Knutson: This episode has been updated.
--:-- Jessica Mendoza: A previous version incorrectly stated that the Cotabaren's restaurant opened in 2017.
--:-- Ryan Knutson: It opened in 2022.
--:-- Jessica Mendoza: That's all for today, Friday, September 20th.
--:-- Ryan Knutson: The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Jessica Mendoza: The show is made by With help from Trina Menino.
--:-- Ryan Knutson: Our engineers are Griffin Tanner, Nathan Singapok, and Peter Leonard, with help this week from Sam Baer.
--:-- Jessica Mendoza: Our theme music is by So Wiley.
--:-- Ryan Knutson: Additional music this week from Catherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Nathan Singapok, Griffin Tanner, and Blue Dot Sessions.
--:-- Jessica Mendoza: Fact-checking by Najwa Jamal and Mary Mathis.
--:-- Ryan Knutson: Thanks for listening.
--:-- Jessica Mendoza: See you on Monday.
--:-- Ryan Knutson: We'll see you next time.
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