The Federal Reserve lowered interest rates by 0.25 percentage points on Thursday, as widely anticipated by the market, bringing the federal funds rate to a target range of 4.5% to 4.75%, the lowest since February 2023.
With this decision, the Fed slowed the pace of rate cuts compared to September, when policymakers opted for a more substantial 0.5% cut to initiate the easing cycle.
Thursday’s move reduces the Fed’s benchmark rate to about 4.6%, down from a four-decade high of 5.3% before September’s meeting. The Fed had kept its rate that high for more than a year to fight the worst inflation streak in four decades. Annual inflation has since fallen from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.
The Fed’s November policy statement continued to highlight that the economy has expanded at a “solid pace,” job growth “has generally eased” and inflation “has made further progress” toward the 2% target, although it remains “somewhat elevated.”
Investors have sharply pushed up Treasury yields since the central bank cut rates in September. The result has been higher borrowing costs throughout the economy, thereby diminishing the benefit to consumers of the Fed’s half-point cut in its benchmark rate, which it announced after its September meeting.
The motivation is recent data that showed America’s economy is growing steadily, even as job gains have slowed down.
Unemployment has risen slightly, though it remains relatively low. Meanwhile, inflation is closer to the Fed’s goal of 2%, but it’s still higher than they’d like.
In its statement, the Federal Reserve says it's goal is to maintain a delicate balance between maximum employment and price stability. The committee believes the risks of not hitting either of those goals are more balanced now than they were before.
But they aren’t entirely sure what’s coming next for the economy. It’s still hard to tell which way things will go. The central bank said that:
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
Expectations in the aftermath of The Federal Reserve Interest Rate Cut.
Lower rates mean mortgage rates will likely drop, making it easier for people to refinance or buy a home. So, if you’ve been sitting on the fence about homeownership, now might be a good time to jump in.
Car loans and personal loans should also get cheaper. This could push more people to take out loans for big purchases, which helps boost spending—a key part of keeping the economy moving.
Businesses are likely to benefit from cheaper borrowing costs too. This could lead to more investments and hiring.
With lower interest rates, companies may find it more affordable to fund new projects or expand their operations. That might reverse the recent slowdown in hiring and give wages a boost as businesses look for more workers.
High-yield savings accounts and CDs, which were offering solid returns during the Fed’s rate hikes, will likely see those rates fall. For example, six-month CDs that were giving 6% interest will probably take a hit after this cut.
If you’re relying on traditional savings products, it might be time to rethink your strategy. With lower rates, the returns won’t be as attractive.
The next Federal Open Market Committee (FOMC) meeting is scheduled for December 18, 2024.