The Federal Reserve announced it would cut the federal funds rate by a full percentage point — which could potentially help San Diego businesses and consumers hurt by the coronavirus outbreak.

The Fed is seeking a target range of 0.00 percent to 0.25 percent, and made significant moves to bolster the economy in the short-term. However, local economists say there is a lot to consider before taking out a loan or deciding how to maximize debt payments.

Cheaper access to money could mean businesses are able to weather the storm for a month or two, so they can reopen when the threat of COVID-19 is over. It also means consumers could possibly get cheaper car loans and home mortgages, even though it might not be the best time to do so — especially if they have to stop working because of the virus.

“If (a consumer) doesn’t have income and they are borrowing money, that’s not a prudent thing to do,” said Ray Major, economist with the San Diego Association of Governments, or SANDAG. “Now is not necessarily the time to go into debt.”
Here are key areas of the San Diego economy possibly affected by the Fed’s action:

Cheaper small-business loans
Part of the Fed’s move was to benefit small businesses that are suffering from fewer shoppers or closures. This might be especially relevant in San Diego because California was one of the first states to ask bars to close and for restaurants to limit capacity.

Mortgage rates
Interest rates have been on a trend downward for months, potentially making the cost of a home in San Diego County — one of the most expensive markets in the nation — slightly more affordable.
The rate for a 30-year, fixed-rate mortgage was 3.63 percent Monday morning, said Mortgage News Daily. That’s a bit higher than it has been in recent weeks, but still at historic lows and down from 4.4 percent at the same time last year.

Auto loans
If you have coronavirus, or are suffering economically because of it, the last thing you might be thinking of is buying a car. But, lower interest rates could also mean better rates or even refinancing an existing car loan.

Still, some analysts are worried that measures from the Federal Reserve will not be enough, and auto loans are one of the most cited examples of this.

“Lower interest rates will do little to attract consumers to auto dealer lots, stores, or open houses,” said Lynn Reaser, chief economist for the Fermanian Business & Economic Institute at Point Loma Nazarene University. “They will also not cause businesses to invest more in new equipment or expansion.”

Long term
Gin, the economist at the University of San Diego, said he was concerned that the Fed had done already done everything it could by limiting rates so severely, preventing it from doing much after this.

He said the problem right now is not that businesses need access to capital, but that people are scared to shop and go out to places.

“I don’t think anything on the monetary side is going to be effective,” he said.

Gin said it was obvious from the stock market on Monday, which crashed even after the measures were announced, it was not impressed by the Fed’s move.

Source: SDuniontribune by Phillip Molnar