The Federal Reserve is expected to cut interest rates for the second time this year on Thursday, the move coming less than two months after its surprise cut in September.
The Fed is expected to cut borrowing costs by 0.25 percentage points, half of its September reduction, according to forecasts from economists surveyed by FactSet. This would bring the federal funds rate – the interest rates banks charge each other for borrowing money – to a range of 4.5% to 4.75% from its current level of 4.75 % to 5%.
With the Federal Reserve’s preferred inflation measure falling to 2.1% last monthjust shy of the Fed’s 2% target, the central bank is lifting the curbs it applied when inflation hit a 40-year high during the pandemic. High borrowing costs have made it more expensive to buy everything from homes to cars.
If the Fed cuts rates by 0.25 percentage points on Thursday as planned, the move will provide additional relief to consumers, although the initial benefit will be small, experts say. The Fed is expected to continue cutting rates at its upcoming meetings, which could result in more savings for borrowers.
“Once a few more reductions are made over the next few months, the impact will add up and shake things up for the average person struggling with debt,” said Matt Schulz, LendingTree chief credit analyst, in an email. “But for now, the effect of these reductions will not be very noticeable.”
Here’s what you need to know about Thursday’s Fed meeting.
Will the Fed lower interest rates?
Yes, the Fed is expected to cut its key rate by 0.25 percentage points on Thursday, November 7, according to economists surveyed by FactSet.
“Ongoing disinflation in price and wage growth, along with strong productivity growth, should support a gradual recalibration of Fed policy with a 25 basis point rate cut after the election, following a disproportionate 50 basis point reduction in catch-up rates in September,” noted Gregory Daco, EY chief economist. a report from October 31.
Daco expects the Fed to cut rates by an additional 0.25 percentage point at each meeting through June 2025. This will bring the federal funds rate down to 4.4% in December and 3.4% in June.
What time is the Fed rate decision?
The Fed will announce its decision at 2 p.m. ET on November 7, followed by a press conference with Fed Chairman Jerome Powell at 2:30 p.m.
The Fed’s next rate decision will be announced on December 18.
How far will rates fall in 2024?
The Fed is expected to lower its benchmark rate to a range between 4.25% and 4.5% at its December meeting. That would reflect a one-percentage-point reduction from its pre-September level, when the federal funds rate was at its highest level in more than two decades.
But that doesn’t mean mortgage rates or other borrowing costs will drop to that level, because lenders like mortgage companies and credit card companies make money by charging consumers higher terms than the federal funds rate.
Still, borrowers should get some relief. Credit card rates are already slightly lower, although they remain near record levels, according to Schulz.
“While they will certainly continue to decline in the coming months, no one should expect credit card bills to dramatically reduce in the near future,” he added. “Unless the Fed significantly accelerates its pace of rate cuts, it will still be a while before these cuts add up to more than a few dollars per month on your bill.”
Will mortgage rates go down?
Despite the Fed’s cut in September, mortgage rates have risen over the past month, with the average interest rate on a 30-year fixed-rate loan sitting at about 6.72%, according to Freddie Mac. That’s up from September’s low of 6.08%.
Although the Fed’s rate decisions impact mortgage rates, home borrowing costs are also affected by economic trends such as unemployment. Meanwhile, Treasury yields rose on concerns about rising U.S. debt and the presidential election.
“As long as investors remain worried about what the future might bring, Treasury yields and, by extension, mortgage rates will struggle to fall and stay low,” noted Jacob Channel, senior economist at LendingTree.
