The Fed’s Rate Cut

The Fed finally did it. A cut of 50 basis points highlights their desire to keep the United States economy from sliding into recession. We still expect another rate cut this year for a total of 75 basis points reduction.

Interest rate cuts tend to be stimulative for economic growth as it results in lower borrowing costs for individuals as well as businesses. It's the hope of the markets that the Fed has not waited too long to take action.

Our best case scenario still is that a recession is unlikely and that a soft landing is probable. The data will tell the story; we will be watching.

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“The Federal Reserve cut U.S. short-term borrowing costs on Wednesday by a bigger-than-usual half percentage point, a watershed moment that should start to ease some of the financial pressures everyday consumers have felt over the two and a half years that the central bank has battled with high inflation.

The Fed, after 5.25 percentage points of increases between March 2022 and July 2023, lowered its key rate to 4.75%-5.00% to address rising worries about the cooling labor market.

Financial markets are now pricing in the central bank to keep lowering rates to around 4.00%-4.25% by the end of the year, with more cuts in 2025.

Fed policymakers have said that they don't see the policy rate returning to the sub-2% levels that prevailed for more than a decade before 2022. That era's low mortgage rates, often under 4%, aren't coming back any time soon.

Still, a lower policy rate should translate to cheaper borrowing costs for most kinds of loans while, on average, paychecks are now rising faster than prices as inflation has cooled substantially. Even so, each trip to the grocery store is a reminder that today's dollars don't go as far they did just a few years ago.”

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Source: 
https://www.reuters.com/markets/us/what-does-fed-rate-cut-mean-american-households-2024-09-18/

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