The Federal Reserve is expected to cut its key interest rate by a quarter of a percentage point at its meeting this week.
This would be the Fed's third consecutive rate cut this year, following cuts in September and October, and would bring the key interest rate to a range of 3.50% to 3.75%.
President Donald Trump has sharply criticized Fed Chairman Jerome Powell and argued that interest rates should be significantly lower. Trump has also said he knows who he wants to choose to replace Powell, with Kevin Hassett, director of the National Economic Council, considered the leading candidate.
If appointed, Hassett would take the helm of a Fed that is currently torn between officials who believe additional rate cuts are warranted and those who are reluctant to further ease monetary policy.
Read more about CNBC's personal finance coverage
The federal funds rate, set by the Federal Open Market Committee, is the interest rate at which banks lend to each other overnight. Although not the interest rate consumers pay, the Fed's actions still affect the interest rates individual borrowers pay on many types of consumer loans.
However, for most Americans, a Fed rate cut is no guarantee of lower borrowing costs.
A mixed picture for consumers
“Anyone who invests in floating-rate debt that tracks high-grade bonds could see their borrowing costs fall — but for the mortgage market and all other longer-term interest rates, we could actually see an increase,” said Brett House, an economics professor at Columbia Business School. “It depends on the duration of the product and the product itself.”
Short-term interest rates are more closely tied to the prime rate, which is the interest rate that banks charge their most creditworthy customers – typically 3 percentage points above the federal funds rate. Longer-term interest rates are also influenced by inflation and other economic factors.
Mr. Vito | E+ | Getty Images
Since most credit cards have a short-term, variable interest rate, there is a direct connection to the Fed's benchmark.
If the Fed lowers interest rates, the federal funds rate will also fall, and the interest rate on your credit card debt will likely adjust within a billing cycle or two. Still, credit card APRs will only fall to extremely high levels.
“An increase from 20% to 18% doesn’t change your situation,” said Stephen Kates, a financial analyst at Bankrate. “It doesn’t put you in a position where it’s significantly easier to maintain that balance.”
Interest rates on auto loans and federal student loans are fixed for the life of the loan and do not adjust based on Fed actions. However, anyone who buys a car or takes on education debt in the coming year could benefit if the cost of new loans falls.
Longer-term loans such as mortgages make up the majority of consumer debt, but these loans are even less influenced by the central bank. Both 15- and 30-year mortgage rates are more closely tied to Treasury yields and the economy.
“The bond market does not believe inflation has been overcome,” Professor House said, pointing out that the lack of confidence had kept mortgage rates in the same narrow range.
Additionally, since most people have fixed-rate mortgages, their interest rate will not change unless they refinance or sell their current home and purchase another property.
Other home loans will be more impacted by the Fed's actions. Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are tied to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts immediately.
Bankrate's Kates says raising your credit score is a more effective way for Americans waiting for relief from high borrowing costs to secure preferential interest rates on credit cards, auto loans, personal loans and even mortgages.
“The best way to lower your borrowing costs is to improve your credit score and not have to worry about what the Fed is doing,” he said.
Subscribe to CNBC on YouTube.