The Federal Reserve cut its benchmark interest rate by an unusually low half-point on Wednesday, a sharp shift after more than two years of high rates that helped tame inflation but also made borrowing painfully expensive for American consumers.
The rate cut, the first in more than four years, reflects the Fed’s renewed willingness to support the jobs market, which is showing clear signs of slowing. Coming just weeks before the presidential election, the Fed’s move also risks upending the economic landscape just as Americans prepare to vote.
Here’s what Wednesday’s move means:
How much has the Fed lowered its interest rate?
The central bank cut its benchmark interest rate to about 4.8% from 5.3%, its highest level in two decades, where it had been for 14 months, as it struggled to curb the worst run of inflation in four decades. Inflation has fallen from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August, not far from the Fed’s 2% target.
Are more rate cuts coming?
Fed officials have also indicated they plan to cut their benchmark rate by an additional half-point at their final two meetings this year, in November and December. They are also considering four more rate cuts in 2025 and two in 2026.
How will the rate cut impact you?
The Fed’s rate cuts should, over time, lower borrowing costs for mortgages, auto loans and credit cards, boosting Americans’ finances and further supporting spending and growth. Homeowners will be able to refinance their mortgages at lower rates, save on monthly payments and even shift credit card debt to less expensive personal loans or home equity lines of credit. Businesses will also be able to borrow and invest more.
Average mortgage rates have already fallen to an 18-month low of 6.2%, according to Freddie Mac, leading to increased demand for refinancing.
In a statement, the Fed moved closer than ever to beating inflation: It said it “has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Even though the central bank now believes inflation is largely under control, many Americans remain unhappy with the continued high prices of groceries, gasoline, rent and other necessities. Former President Donald Trump blamed the Biden-Harris administration for sparking a surge in inflation. Vice President Kamala Harris, for her part, accused Trump’s promise to impose tariffs on all imports of further increasing prices for consumers.
