The Federal Reserve lowers interest rates by 0.25 percentage points


The Federal Reserve on Thursday announced its second interest rate cut of 2024, trimming its benchmark rate by 0.25 percentage points amid cooling inflation. The expected move by the U.S. central bank provides additional relief to millions of Americans grappling with high borrowing costs. 

The Fed cut, half the size of its September reduction, lowers the federal funds rate — the interest rate banks charge each other for short-term loans — to a range of 4.5% to 4.75% from its current 4.75% to 5% level.

The announcement marks the Fed’s first interest rate decision since President-elect Donald Trump secured another term in the White House following the Nov. 5 election. In exit polls on Tuesday, many voters reported that they’re still hurting from the sharpest inflation in 40 years and expressed dissatisfaction with the nation’s economic trajectory. 

Inflation remains “somewhat elevated”

Although inflation has since cooled and now hovers just above the Fed’s goal of a 2% annual rate, prices remain high, while elevated borrowing costs have also hit people’s pocketbooks. 

“Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low,” the Federal Open Market Committee, the Fed’s rate-setting panel, said in its statement. “Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.”

The two rate cuts so far this year, which have reduced the federal funds rate by a combined 0.75 percentage points, but the larger impact will be felt if the Fed continues to cut rates at its December meeting and into 2025, experts say. 

“The Fed cutting rates a quarter point this month is more about a long-term trend,” Christopher Clarke, a professor of economics at Washington State University, told CBS News. “People should think about this as a half a point a month ago, a quarter point this month, a quarter point next month.”


New U.S. economy data before next Fed interest rate decision

03:36

He added, “Overall, we’re expecting a whole percentage point this year and another percentage point next year, so that’s going to lower interest rates on auto loans, mortgages, credit cards, et cetera.”

Analysts with Capital Economics predicted the Fed would drop its benchmark rate by a quarter point at each of its next three meetings, with the rate bottoming out in May between 3.50% and 3.75%.

Will Trump win affect the Fed’s thinking?

While many economists expect an additional cut at the Fed’s December meeting and more reductions in early 2025, any future moves by monetary policy makers appear more uncertain following the election amid concerns that some of Trump’s key economic proposals could stoke inflation.

“With additional inflation and employment data in, the Fed went 25 basis points as expected. We expect the same to occur in December,” Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions within Goldman Sachs Asset Management, said in an email. 

Watson added, “However, stronger data and uncertainty over fiscal and trade policies mean rising risks that the Fed may opt to slow the pace of easing.”

Trump’s proposed combination of tariffs, tax cuts, increased federal spending and mass deportation of undocumented immigrants could increase inflation by as much as 1 percentage point, some economists project. 

If that occurs, the Fed would be hard-pressed to continue easing borrowing costs, and could instead be forced to raise interest rates to counter those inflationary pressures. 



Source link

About The Author

Scroll to Top