What's next for US interest rates?
The Fed makes a sizable cut
For the first time since early 2020, the Federal Reserve slashed rates at its September meeting. Now, the central bank's benchmark interest rate sits a half point lower, at between 4.75% and 5%. Previously, rates had remained at a high of between 5.25% and 5.50% since July 2023.
This rate cut "is one of the most heavily anticipated of the year," said The Washington Post. After holding off for a long time as it monitored inflation and other economic indicators, the Fed's "more aggressive approach" suggests "officials are proactively trying to ease pressure off the economy and keep the job market from slowing any further."
What will the Fed do next?
The rate cut the Federal Reserve announced at its meeting in September could be the first in a series of rate cuts to come. In the Summary of Economic Projections, also known as the dot plot, released after the September meeting, Fed officials "projected another half point of rate cuts later this year, which would lower the central bank's policy rate to 4.4%," said The New York Times. "And by the end of 2025, they expect rates to be down to 3.4%."
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Federal Reserve Chair Jerome Powell spoke about the Fed's move toward rate cuts, and its start with a more aggressive cut than some expected, in a press conference following the meeting. "Our patient approach over the past year has paid dividends," he said, per The New York Times, but now "the upside risks to inflation have diminished, and the downside risks to unemployment have increased."
While previously, the Fed "has struggled to get inflation down to 2%," now it "expects the long-run neutral rate to be around 2.9%," said CNBC. Still, Powell maintained after September's meeting that the U.S. economy was in good shape. "It's growing at a solid pace, inflation is coming down, the labor market is in a strong place. We want to keep it there," he said, per NBC News.
When is the next interest rate decision?
The next Federal Reserve meeting is scheduled for Nov. 6-7, shortly after the U.S. presidential election. It has just one more meeting this year after that, in December. Fed officials have predicted a further lowering of the benchmark rate before the end of 2024.
How do interest rates affect the economy?
The Fed uses interest rates "like a gas pedal and a brake pedal," Forbes said. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn't actually set the funds rate — banks do that — but "the Fed assumes that banks will use it as a floor in their own lending," Forbes added.
Rate changes usually take "at least 12 months" to have "widespread economic impact," Investopedia said. But the stock market reacts immediately. For example, when Powell signaled last year that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, "Treasury yields rose and the dollar extended again after Powell's comments," said Reuters.
What do rate cuts mean for your wallet?
Now that the Federal Reserve has finally started on what is expected to be a series of rate cuts, a new question emerges for consumers: What do they mean for your finances?
For the most part, it is good news. It is expected that these long-awaited interest rate cuts "will provide some welcome relief for consumers who are in the market for a home or auto purchase, as well as for those carrying pricey credit card debt," said CBS News.
However, these effects may not be apparent immediately. For mortgage borrowers, for instance, "there may be a delay, in part because many lenders have already priced in a Fed cut in the near term," said The Washington Post.
Meanwhile, "other rates, for personal loans, credit cards, and auto loans, are typically more closely tied to actual changes in the Fed's policy rate and should drop soon after the Fed acts," said Reuters, citing Parthenon's Gregory Daco.
It is not all good news. Rate cuts "could also have a downside of shaving the relatively high returns recently enjoyed by savers," said CBS News. In fact, "some experts have predicted that the top savings accounts could see rates drop by as much as 0.75 percentage points after the Fed cuts rates."
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
What's behind Trump's last-minute merch push?
Today's Big Question With just weeks to go before the election, Donald Trump is spending the waning days of his campaign hawking a suite of new products, from silver coins to cryptocurrency
By Rafi Schwartz, The Week US Published
-
Kamala Harris' plan to raise taxes on corporations and the wealthy
the explainer Tweaks, rather than sweeping overhauls, characterize the Democratic nominee's proposals
By David Faris Published
-
The most notable October surprises
In the Spotlight Late breaking news in October has the power to rock presidential races
By Justin Klawans, The Week US Published
-
How can you save on homeowners insurance?
The Explainer With the rise in extreme weather, house protection is a non-negotiable
By Becca Stanek, The Week US Published
-
What should you consider when choosing a financial adviser?
The Explainer The right person can be a big help with financial planning, investing, taxes and more
By Becca Stanek, The Week US Published
-
How the Autumn Budget could affect your finances
The Explainer From tax rises to pension reforms, the chancellor's decision may have a significant impact
By Marc Shoffman, The Week UK Published
-
Should you lease your next car?
The explainer To buy or to lease, that is the question
By Becca Stanek, The Week US Published
-
Where should you stash your savings after the Fed rate cut?
The Explainer You will not be earning as much on savings rates, so you may want to make some changes
By Becca Stanek, The Week US Published
-
The pros and cons of investing in crypto
The Explainer Should you hop on board the cryptocurrency train?
By Becca Stanek, The Week US Published
-
3 tips for using credit cards without racking up debt
The Explainer When used responsibly, these pieces of plastic can have some real benefits
By Becca Stanek, The Week US Published
-
What are the options