This week, the Fed announced that it reduced its key rate by an unusually large half-percentage point, to between 4.75 and 5 percent, the first rate cut in more than four years.
The central bank is acting because, after imposing 11 rate hikes dating back to March 2022, it feels confident that inflation is finally mild enough that it can begin to ease the cost of borrowing. At the same time, the Fed has grown more concerned about the health of the job market. Lower rates would help support the pace of hiring and keep unemployment down.
"Recent indicators suggest that economic activity has continued to expand at a solid pace," the Fed said in a statement. "Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress."
More Fed rate cuts are expected in the coming months, with the steepness of the reductions dependent on the direction of inflation and job growth.
"We know that it is time to recalibrate our (interest rate) policy to something that's more appropriate given the progress on inflation," Fed Chair Jerome Powell said at a news conference. "The labor market is actually in solid condition and our intention with our policy move today is to keep it there."
"We don't think we're behind - we think this is timely," he added. "But I think you can take this as a sign of our commitment not to get behind."
WHAT DO THE FED'S RATE CUTS MEAN FOR SAVERS?
Although taking action now to try to capitalize on lower rates, like shifting money out of a certificate of deposit or refinancing a mortgage, "might be warranted for some, you shouldn't feel obligated to completely change up your financial strategy just because rates move lower," said Jacob Channel, a senior economist at LendingTree.
"Act cautiously and responsibly," Channel said, "and don't make any rash decisions based on a single Fed meeting or economic report."
This story is from the September 21, 2024 edition of Techlife News.
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This story is from the September 21, 2024 edition of Techlife News.
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