By Tilly Armstrong Assistant Consumer Editor For Dailymail.Com
The Federal Reserve cut interest rates Wednesday by the biggest amount in 16 years.
The 50-percentage points reduction will make borrowing money less expensive, taking some of the pressure off consumers’ wallets.
Today’s cut brings benchmark borrowing costs down to between 4.75 percent and 5 percent.
While the Fed rate does not directly affect rates for loans, credit cards and mortgages, it strongly influences them.
Lower rates are also seen as generally good for businesses – so as they fall, the stock market rises. That means today’s news will help boost 401(K)s in coming months.
The rate cut was an aggressive start to the central bank’s first easing campaign since the early days of the Covid-19 pandemic in 2020. Normally, the come in smaller 0.25 basis point increments.
The Fed last made such a big cut in the Great Recession that began in 2008.
Chairman Jerome Powell said two more cuts are almost certain to happen by the end of the year – in a boost for Americans.
Stock markets initially soared on the rate cut, though they fell back in late afternoon trading as traders banked profits.
In his press conference after the announcement, Powell was asked about the jobs market in the US.
A bad jobs report released in August was cited as an indicator that America might slump into a recession.
But Powell explained that migration into the US was having an effect on unemployment.
Influx of immigrants has impacted unemployment rate, Powell says
When asked about job creation being just over 100,000 per month for the last three months, Powell noted that immigration into the US plays a part in job growth.
‘Job creation depends on inflows,’ said Powell. ‘So if you’re having millions of people come into the labor force and you’re creating 100,000 jobs, you’re going to see unemployment go up.
‘So it really depends on what’s the trend underlying the volatility of people coming into the country,’ he continued.
‘We understand there’s been quite an influx across the borders, and that’s been one of the things that has allowed the unemployment rate to rise.
‘And the other thing is just the slower hiring rate which is something we also watch carefully. So it does depend on what is happening on the supply side.’
Honestly the story is misleading- a .5% rate reduction in the price of a mortage helps no one. Inflation is the problem. The increased inflation from this move will actually make house values go up to negate any savings. This means taxes will go up, and insurance rates will go up taking away more people from being able to by a house. Gold is a winner- stocks will be a loser….Rate cut could help extend uptrend in gold… and it will. n
‘Higher for longer’
Torsten Slok, a partner and chief economist at US-based asset management firm Apollo Global Management, said interest rates are expected to remain relatively higher for longer, even if the Fed begins a monetary easing cycle.
“If we assume the interest rate futures market is correct in pricing in at least four rate cuts in 2024—which we believe is overblown—short-term interest rates would by the end of 2024 be around 4.5%, a level that would still be the highest for overnight rates since 2007 (excluding the Fed’s current hiking cycle),” he said in an email.
“Furthermore, if we take in the expectations for an additional five rate cuts in 2025, rates will reach 3% by the end of next year, which is nearly double the average 1.8% rate over the past decade,” he added.
The Fed indicated Wednesday that it may cut interest rates by an additional 50 basis points by the end of this year, according to its latest projection materials.
The bank may lower interest rates four more times by 25 basis points each next year, and two additional times by 25 basis points each during 2026, the projections showed.
“Our expectation remains that it will take longer for inflation to come down to the central bank’s 2% target range, and as a result, the curve will continue to steepen, meaning long rates are going to decline less than short rates,” Slok said.