The Federal Reserve announced its second interest rate reduction of the year on Wednesday, lowering the benchmark rate by a quarter-point to a target range of 3.75%-4.00%.
This decision, reached by the Federal Open Market Committee (FOMC) following a two-day meeting, comes after a similar quarter-point cut in September. The adjustment is taking place amid weaker job market indicators and a federal government shutdown that has impeded the release of vital economic data.
Job Creators Network CEO Alfredo Ortiz expressed that “falling interest rates will help small businesses access necessary credit to take advantage of the strong economic momentum generated by President Trump and Congressional Republicans’ growth-focused policies.”
He continued, “With inflation under control, gas prices at a low that we haven’t seen in years, record highs in the stock market, and tax cuts from the Big Beautiful Bill stimulating growth, the economy is set for ongoing advancement.” Ortiz emphasized that this rate cut would enable small businesses to expand, hire, and invest, further propelling the economic resurgence in the U.S.
The interest rate cut happens against a backdrop of declining job creation numbers. The latest report for August showed only 22,000 new jobs added, and revisions from the Bureau of Labor Statistics indicated that around 911,000 fewer jobs were created over the past year than initially thought.
The employment report for September, usually released early in October, remains unavailable due to the ongoing shutdown. The only significant economic data released recently was the Consumer Price Index, which noted an annual inflation rise of 3% in September, falling short of expectations.
During an October 14 speech, Fed Chair Jerome Powell acknowledged the lack of timely data but remarked that the central bank is still assessing various public and private indicators. He mentioned that “the outlook for employment and inflation doesn’t seem to have shifted much since our September meeting.”
Powell indicated that despite some economic reports being stronger than expected, this has yet to translate into a significant increase in hiring.
“There seems to be a bit of tension between weak job creation and increasing spending,” Powell noted. “It will be interesting to see how that plays out.”
Many economists anticipate another quarter-point cut at the Fed’s upcoming December meeting, which could see the federal funds rate drop a total of 0.75 percentage points by the end of the year compared to its January levels.
“Inflation has certainly been stubborn but is on the decline and will likely continue to do so. Therefore, a series of quarter-point reductions until the funds rate approaches 3% seems fitting,” remarked JD Foster, a former chief economist at the Office of Management and Budget. He indicated that the economy appears to be on stable ground, suggesting no urgency for a more aggressive approach.
Mortgage rates, influenced by the Fed’s actions, have already decreased in anticipation of these changes. As of October 23, Freddie Mac reported that the average rate for a 30-year fixed mortgage stood at 6.19%, down from 6.5% a year prior. However, many are doubtful that further relief for homebuyers will come easily.
“Markets tend to be forward-looking and have already adjusted for the possibility of further cuts,” noted Tobias Peter, co-director at the American Enterprise Institute’s Housing Center. “Rates are significantly lower compared to last year, meaning that another quarter-point change might not have a substantial effect.”
With rates hovering around 6%, many existing homeowners are hesitant to sell, which restricts housing supply.
Housing affordability has become a significant issue for the current administration, with only 28% of homes on the market being affordable for the average household, according to Realtor.com. Treasury Secretary Scott Bessent mentioned in September that a national housing emergency might be declared, while President Trump has suggested eliminating capital gains taxes on home sales.
However, Foster expressed doubts regarding such tax alterations.
“Most home sellers manage to avoid capital gains tax by rolling their equity into their next purchase. For those who might face a tax, a common reaction is that asset prices tend to increase whenever such taxes are cut, which doesn’t genuinely enhance housing affordability,” he argued. “The best solution remains lowering interest rates; this could help local housing markets normalize over time.”
Peter pointed out that while many solutions need to be implemented by state and local governments, significant actions can be taken federally. For instance, he proposed that the Bureau of Land Management could sell land near existing developments to spur housing growth.
“Over ten years, this could potentially yield up to a million new housing units,” he suggested.
He also urged the administration to advocate for reforms like reducing minimum lot sizes and easing restrictions on manufactured homes, ideas that could greatly enhance housing supply.
