Federal rate cut: Will it lead to a better economy? Expert weighs in

ATLANTA - The Federal Reserve’s decision to trim interest rates by a quarter point this week will ripple through the economy in ways both helpful and painful, according to an Emory University finance professor.

Federal rate change explained

What they're saying:

Tucker Balk, who teaches finance at Emory’s Goizueta Business School, told FOX 5’s Tom Haynes that the most immediate effect will be a lower prime rate, which influences adjustable-rate mortgages and home equity lines of credit. "To the negative side, if you have a savings account, it’s likely that the interest rate on the savings account is gonna go down," Balk said. "But in general, lowering these interest rates is kind of like fuel for the economy."

The Federal Reserve faces a balancing act, Balk said, with its dual mandate to maximize employment and minimize inflation. He noted that inflation ticked up last week, which likely capped the cut at a quarter point instead of a more aggressive half-point reduction. "Further rate cuts later in the year are on the tables, and I think we’re almost to see those," he said.

Current inflation explained

Inflation remains stubborn in part because of tariffs, Balk added. Many companies had absorbed costs or relied on stockpiled goods but are now raising prices. "We’re seeing a combination of companies thinking, hmm, we do have to raise our prices and we’re out of the goods that we had stored in advance of the potential tariffs," he said.

Housing market squeeze

Housing has also felt the squeeze, with mortgage rates hovering in the low sixes after spiking to 7 and 8 percent. Balk said more relief could come next year. "With folks predicting we’ll see an overall reduction in the Fed interest rate by at least 1% coming into the next year, that’ll have trickle-down effects on the mortgage rates. So I think we’re gonna start getting closer there."

Trade talks and tariffs

Trade talks could be another turning point. President Trump spoke with Chinese President Xi Jinping this week and plans to meet with him at the APEC summit, with a potential trip to Beijing in the works. Balk said tariffs are central to those negotiations. "Almost everything you buy at Amazon is made in China, and so those tariffs affect essentially our quality of life," he said, predicting tariffs could settle at 30 percent. "Uncertainty is a big problem for us right now, but I think we’re easing, I think getting closer and closer to that agreement with China."

U.S.-China talks

What's next:

Balk said markets are reacting to both the rate cut and the news of U.S.-China talks. While the Dow closed higher Thursday, he cautioned that "the stock market isn’t the economy, although certainly they are related."