Claman Countdown panelists Gabriela Santos and Kenny Porcari analyze the impact of the Federal Reserve's interest rate cut.
of Federal Reserve System The central bank cut its benchmark federal funds rate by 50 basis points on Wednesday, the first cut in interest rates since March 2020, amid progress in battling inflation.
Interest rate traders had priced a 50 basis point cut at 64% probability as of Tuesday, according to the CME FedWatch tool, but the latest cut was larger than the 25 basis point cut expected by economists at LSEG. The 50-point cut would see the Fed lower its target range for the federal funds rate to 4.75% to 5% from 5.25% to 5.5%.
“Our economy is doing well overall and we have made great progress towards our goals over the past two years.” Federal Reserve Chairman Jerome Powell He made the remarks at a press conference after the announcement.
“Today's decision reflects our growing confidence that an appropriate recalibration of the policy stance can maintain the strength of the labor market in an environment of moderate growth and inflation declining sustainably to 2 percent.”
The Federal Reserve cuts interest rates by half a percentage point, the first cut in four years.
Federal Reserve Chairman Jerome Powell said slowing inflation was the catalyst for the Fed's interest rate cut. (Photographer: Michael Nagle/Bloomberg via Getty Images/Getty Images)
Inflation slowed to 2.5% in August, according to the Labor Department's Consumer Price Index (CPI), above the Fed's 2% target but signaling continued easing. Inflationary pressures This is a drop of nearly 0.5 percentage points from July's overall index of 2.9%.
In its summary of economic projections, the Federal Reserve's policy arm projected that the central bank's preferred inflation gauge, the personal consumption expenditures (PCE) index, will slow to 2.3% at the end of 2024, then decline to 2.1% in 2025 and 2% in 2026 and 2027.
Policy makers should: Unemployment rateThe unemployment rate rose to 4.3% in July, then fell to 4.2% in August, but is expected to finish the year at 4.4%, rising slightly. The unemployment rate is projected to remain at 4.4% in 2025, before declining to 4.3% in 2026 and 4.2% in 2027.
Fed interest rate cuts won't relieve credit card debt
Federal Reserve policymakers expect further rate cuts in the coming months. (Photographer: Nathan Howard/Bloomberg/Getty Images)
“We don't see anything right now that suggests a downturn in the economy is increasingly likely,” Powell said in response to a question about whether the economy is prone to a recession. “I don't think so. Economic growth is strong, inflation is declining, and the labor market remains in very strong condition.”
Stock prices rose immediately after the Fed's announcement, with the Dow Jones Industrial Average and the S&P 500 each hitting record highs after the announcement, before falling back. Closing bellThe Dow Jones Industrial Average lost 0.25%, while the S&P 500 ended down 0.29%.
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| Me: DJI | Dow Jones Average | 41503.1 | -103.08 |
-0.25% |
| SP500 | S&P 500 | 5618.26 | -16.32 |
-0.29% |
| I:Comp | Nasdaq Composite Index | 17573.30051 | -54.76 |
-0.31% |
The interest rate cut could have a slight impact on consumer borrowing costs, such as mortgages and auto loans. Interest rates offered by lenders The Fed's benchmark rate will have an impact. Following the Fed's announcement, both Bank of America and Wells Fargo said they would cut their prime lending rates by 50 basis points to 8%, effective Thursday.
'The Fed is in a bind': Economists weigh in on how rate cuts could affect election
The Dow Jones Industrial Average and the S&P 500 Index both closed slightly lower on Wednesday after briefly hitting all-time highs following the Fed's announcement. (Spencer Pratt/Getty Images/Getty Images)
Borrowers will be hit harder if the Fed continues to cut rates in the coming months, as policymakers expect further cuts if rates rise. Economic Data We want them.
The Federal Reserve's economic forecasts suggest that interest rates will be cut by half a percentage point over the next few months, to a range of 4.4% to 4.6% by the end of the year, based on the central tendency of policymakers' estimates.
From there, Fed policymakers projected the federal funds rate to fall further to a range of 3.1% to 3.6% by the end of 2025, before reaching a level between 2.6% and 3.6% by the end of 2026.
Click here to get FOX Business on the go
The Fed has two more policy meetings on its schedule this year: on Nov. 6 and 7, just after Election Day on Nov. 5, and on Dec. 17 and 18, when the central bank will outline its next economic projections.
