Federal Reserve interest rates cuts

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The Federal Reserve on Wednesday said it is cutting its benchmark interest rate by 0.50 percentage points, marking the first reduction in four years and moving to ease borrowing costs as inflation-weary consumers are grappling with high rates on everything from mortgages to credit cards.

It is the first drop in the federal funds rate — or what banks charge each other for short-term loans — since the U.S. central bank lowered rates to nearly zero in March 2020 amid an economic standstill caused by the pandemic. But as prices surged during the health crisis, the Fed repeatedly hiked rates into a target range of 5.25% to 5.5%, the highest in 23 years, in an effort to curb inflation.

The economic whipsaw of the past four years has left many consumers and businesses struggling with both high prices and elevated borrowing costs, even as the Fed's rate hikes have helped cool inflation to 2.5% in August on an annual basis, close to the central bank's 2% target.

More recently, however. there have been some worrying signs about a slowdown in the labor market, prompting Fed Chair Jerome Powell last month to say "the time has come" to ease rates.

"A September cut, along with the possibility of at least one more this year, should be welcome news to investors," said Joe Gaffoglio, CEO at Mutual Of America Capital Management, in an email ahead of the decision. The rate reduction, "coupled with moderating inflation, should help ease the financial strain on lower- and middle-income consumers."

Even more important than today's cut is what the Fed does in the months ahead as it pivots away from battling inflation to revving up the nation's economic engines in a bid to stave off a downturn.

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Fed cuts interest rates, delivering relief for borrowers​

The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, delivering relief for borrowers at the central bank's last meeting before President-elect Donald Trump takes office next month.

The move marked the third consecutive interest rate cut since the Fed opted to start dialing back its fight against inflation in the fall. The Fed has lowered interest rates by a percentage point in recent months.

he benchmark interest rate helps determine loan payments for everything from credit cards to mortgages. Even after recent cuts, the Fed's interest rate remains at a historically high level of between 4.25% and 4.5%.

The size of the interest rate cut on Wednesday matched investors' expectations.

MORE: Fed expected to cut interest rates despite rising inflation. Here's why
The latest rate cut may prove the Fed's last for many months, experts previously told ABC News.

A recent bout of stubborn inflation could prompt central bankers to freeze interest rates in place as they bring price increases under control. A humming economy, meanwhile, shows little need for the jolt of activity that lower borrowing costs may provide, the experts said.

Consumer prices climbed 2.7% in November compared to a year ago, marking two consecutive months of accelerating inflation, government data last week showed.

Inflation has slowed dramatically from a peak of more than 9% in June 2022. But the recent uptick has reversed some progress made at the start of this year that had landed price increases right near the Fed's target of 2%.

MSN

 

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Jerome Powell finally does it: Federal Reserve cuts interest rates a quarter of a percent​

Federal Reserve Chairman Jerome Powell announced on Wednesday that the central bank would cut rates amid President Donald Trump’s attempts to reshape the Fed’s independence.

The chairman announced that the Federal Reserve would cut the interest rate by .25 points, the first time that it cut interest rates since December.

The rate cut comes as inflation has continued to climb amid Trump’s “Liberation Day” tariffs that came into full effect last month. Powell in the past has warned about the fact that tariffs could contribute to inflation.

Typically, the central bank raises interest rates to combat rising prices. But the central bank’s dual mandate also requires it to keep unemployment low. The two most recent jobs reports showed lackluster growth in labor.

This comes as Trump has staged an unprecedented assault on the independence of the Federal Reserve, which has long been a core tenet of monetary policy in the United States.

Earlier this week, the U.S. Court of Appeals for the District of Columbia blocked the Trump administration’s attempt to fire Lisa Cook, a member of the Federal Reserve’s Board of Governors.

This came after a lower court allowed Cook to stay on the board when Trump tried to fire her once Federal Housing Finance Agency Director Bill Pulte accused her of making false statements on mortgage requirements.

In addition, this week, the Senate voted to confirm Stephen Miran to the Board of Governors despite the fact he simultaneously holds a position as the chairman of Council of Economic Advisers. Miran dissented from the Federal Reserve’s decision, saying that he wanted to cut interest rates by 0.5 percent.

Trump has in the past called Powell “too late” and a “stupid person” for his refusal to cut interest rates. His administration has also criticized planned renovations for the Federal Reserve’s office building in Washington, with Trump visiting the building this summer, where Powell challenged Trump about the projected costs.

Powell, whom Trumo nominated to lead the Federal Reserve in 2017 and whom Joe Biden renominated, will see his term expire in May of next year. The Federal Reserve Chairman serves for five-year terms.

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Fed cuts rates again, signals it may be done for now​

Federal Reserve officials cut interest rates at their third consecutive meeting but signaled little appetite for more amid unusual internal divisions over whether inflation or the job market should be their bigger worry.

The Fed voted 9-3 for the reduction on Wednesday, the first time in six years that three officials cast dissents. Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid thought the reduction wasn’t warranted, while Fed governor Stephen Miran favored a larger, half-point cut.

The decision to reduce the benchmark federal-funds rate by a quarter point—to between 3.5% and 3.75%, a three-year low—is aimed at protecting against a sharper-than-anticipated slowdown in hiring.

With progress on inflation stalled, officials had indicated in the run-up to this week’s decision that further reductions could require evidence of labor-market deterioration.

On Wednesday, their painstakingly calibrated post-meeting statement signaled a higher bar to additional cuts—echoing a similar pivot to the sidelines after cutting rates one year ago—by saying that the “extent and timing” of those moves would depend on changes in the economic outlook.

The Fed no longer described the unemployment rate, which ticked up to 4.4% in September from 4.1% earlier this year, as having remained low.

Not every Fed official who participates in the meeting has a vote on the committee. In new quarterly projections, six of 19 officials penciled in a year-end rate above the level before Wednesday’s cut—a sign that some voters backed the cut with reservations or that nonvoters were opposed.

MSN