The 30-year annuitized jackpots for Powerball and Mega Millions will be impacted by the Federal Reserve’s decision this week to cut its benchmark interest rate by a sizeable half-point.
The Federal Reserve’s first cut to its benchmark rate in more than four years will lead to lower borrowing rates for consumers, something that’s expected to help ignite the economy. For Powerball and Mega Millions, however, the cut isn’t necessarily welcomed news.
Since the Feds began trying to offset skyrocketing inflation in the aftermath of the COVID-19 pandemic by increasing interest rates, which the U.S. Treasury uses to set its bond rates, the two major interstate lottery games have benefited from seeing their advertised jackpots grow faster than they would at lower rates.
“The annuity factor, or the cost to fund an annuity prize, is a key component [of calculating jackpots]. The annuity factor is made up of interest rates for securities purchased to fund prize payments,” Powerball officials said.
The higher the interest rates, the higher the advertised grand prize. You might not realize that an economic reality like interest rates impact even the Powerball jackpot, but they do,” the Powerball explanation read.
Bigger jackpots lead to bigger game sales, as many Mega Millions and Powerball players only participate when the advertised prize grows to unthinkable fortunes.
Annuity Payments
The advertised jackpots for Powerball and Mega Millions include how much the winner would receive over 30 years. The money is before a federal tax of 37%, the highest rate levied on the country’s top earners.
Winners of the life-changing jackpots typically choose one-time cash sums. Those who opt for the full value of the pre-tax jackpot receive an immediate distribution followed by annual payouts for the next 29 years.
Instead of the cash going directly to the winner, the lottery instead invests the money in bonds backed by the U.S. Treasury. The current rate for a 30-year Treasury Bond is 4.25%.
The Federal Reserve’s benchmark cut this week reduced the government’s interest rate from 5.3% to 4.8%. The half-point reduction will result in the 30-year Treasury bond being lowered in the coming months.
Assuming the economy continues to stabilize, more rate cuts are likely in the forthcoming quarters. Federal Reserve Chair Jerome Powell said interest rate cuts are reasonable after inflation cooled in recent months.
“We know it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation,” Powell said. “We’re not saying, ‘mission accomplished,’ … but I have to say we’re encouraged by the progress that we have made.”
Inflation in August came in at 2.5%, a three-year low and down from a mid-2022 high of 9.1%.
Mega Ball Change
Advertised jackpots could slow in their drawing-to-drawing growth because of the interest rate cut. But winning the Mega Millions top prize might get a little bit easier next year.
As Casino.org reported earlier this month, the Mega Millions Consortium is expected to soon reveal a major overhaul. Proposed changes include eliminating the Megaplier and Just the Jackpot options and reducing the number of gold Mega Balls from 25 to 24.
By reducing the number of Mega Balls, players’ odds of winning the jackpot will be reduced slightly from the current odds of one in 302.5 million. The proposed changes are to be implemented beginning with the April 8, 2025, drawing.
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