Local Benefits of Interest Cuts

By: Shane Symolon Email
By: Shane Symolon Email

Tuesday's slash in interest rates may have helped keep stocks from sliding further, but area people may wonder just how much these economic simulators help people in the Valley.

To stop a stock market slide the Federal Reserve lowered two interest rates: the federal funds rate and the discount rate. These are the rates banks use to lend to each other and the rates banks get when borrowing from the Federal Reserve respectively.

Lang Smith, First Citizens Bank in Staunton, says that’s good news for other interest rates.

"The prime interest rate usually follows the fed funds rate and that’s the rate that most effects business owners and consumers the most," says Smith.

This may happen because rates on your credit cards might follow this trend. The same thing goes for housing and auto loans, which makes it cheaper to borrow money. Smith says that’s the government's plan.

"To stimulate the economy, to put more money in a consumers pocket or a business owners pocket so they can spend more in the economy," says Smith.

While the question may remain as to whether or not this will work, Smith says he thinks it will at least encourage people to borrow now instead of waiting to borrow later. He says he's seen it before.

"I've had customers wait because they think the rates are going to drop. So people base their decisions on expansion, adding onto the building or a big purchase, something they base that on how they think the rates are going to go," says Smith.

However, bank officials would like to remind people that this measure is being taken only because the economy doesn't appear strong due to the sub-prime lending crisis.

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