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Ahead of the Federal Reserve’s decision to cut interest rates by 50 basis points, CivicScience data indicated that potential cuts could stimulate both consumer spending and borrowing. Following the rate cut, economic sentiment in the U.S. surged, reaching its highest level in over a year. Now, with the effects of this cut beginning to unfold, it’s crucial to understand how they are shaping consumer behavior. 

Are U.S. adults more willing to spend and borrow, and how do these shifts affect their perceptions of personal financial security? Here’s what the data say, according to our database of over 5 billion consumer responses. 

Interest rate cuts don’t have a huge impact on how Americans view their personal financial situation.

A strong majority of Americans polled report that the recent interest rate cut has no impact on how they feel about their finances (63%). However, consumers are five percentage points more likely to say they now feel ‘worse’ than ‘better’ about their personal finances. 

This varies depending on income level. Households who earn $100K+ are the most likely to be unaffected by interest rate cuts (65%) and feel ‘better’ about their finances (20%). Whereas, middle- and lower-income households are nearly equally likely to say they feel ‘worse’ about their finances.

Join the Conversation: How closely do you expect the Federal Reserve’s interest rate cuts to affect your own personal finances?

How are interest rate cuts impacting consumer spending?

CivicScience data show that 40% of Americans plan to increase their spending in at least one way. Among the 40%, paying off existing debt, increasing contributions to retirement savings, and making a major purchase are the top three priorities following interest rate cuts, which matched initial CivicScience data ahead of the cut (excludes those who answered ‘none of these’). With the rate cut impacting interest rates on savings accounts, 1-in-10 plan to open a new bank account or switch banks following the cut. 

Gen Z is more likely to open new lines of credit than pay off debt.

As expected, the data varies by age. Gen Z is most likely to take action as a result of the cut (57%), followed by Millennials (55%) – which is twice as likely as Gen X and Baby Boomers (27%). 

In particular, Gen Z adults aged 18-24 are the most likely to apply for new credit and increase contributions to retirement savings. In contrast, older cohorts are prioritizing paying off existing debt.

What Do You Think? Will the rate cut boost the economy?

Overall, while the Federal Reserve’s interest rate cut aimed to boost economic activity, its impact on consumer sentiment and financial behavior is nuanced. Data strongly suggest that the current cut is likely to trigger debt repayment, retirement savings, and major purchases, with differences existing among age groups. However, to what extent is to be determined, since the majority of Americans report the cut isn’t likely to impact their personal financial situation, while lower-income households are more likely to see a negative impact. That could indicate many are waiting for more rate cuts in the future, which are seemingly in the pipeline. 

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