The Federal Reserve made a rate cut decision today. Here's the impact on your money.
The Federal Reserve on Thursday made its second rate cut of this year, with the decision coming less than two months after the central bank's surprise jumbo cut in September.
The Fed shaved borrowing costs by 0.25 percentage points, or half the size of its September reduction, according to its Thursday statement. That brings down the federal funds rate — the interest rate banks charge each other for borrowing money — to a range of 4.5% to 4.75% from its current 4.75% to 5% level.
With the Federal Reserve's preferred inflation measure dropping to 2.1% last month, just shy of the Fed's 2% goal, the central bank is easing off the brakes 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.
The Fed's 0.25 percentage point cut will provide some added relief for consumers, although the initial benefit will be small, experts say. The Fed is expected to continue cutting rates at its next several meetings, which could snowball into bigger savings for borrowers.
"Once a few more cuts happen over the next few months, the impact will add up to something that moves the needle for the average person struggling with debt," said Matt Schulz, LendingTree chief credit analyst, in an email. "For now, however, the effect of these cuts won't be very noticeable."
At a Thursday press conference to discuss the decision, Fed Chair Jerome Powell noted that Americans "are still feeling the effects of high prices" despite the slowdown in inflation.
"I think what needs to happen is happening, but it'll be some time before people regain their confidence," he added. "We don't tell people how to feel about the economy — we completely respect what they are feeling."
Here's what to know about Thursday's Fed meeting.
What time is the Fed rate decision?
The Fed announced its decision at 2 p.m. ET on Nov. 7. That was followed by a press conference with Fed Chair Jerome Powell at 2:30 p.m.
The next Fed rate decision will be announced on Dec. 18.
How will the election impact the Fed's decision?
The November 7 meeting is the first Fed rate decision since the Nov. 5 election propelled former President Donald Trump to victory.
Although Fed chief Powell was asked about the potential impact of Trump's policies on monetary policy and the economy during today's press conference, he shied away from commenting about the election. He also added that the election won't have a near-term impact on the Fed's decisions, with the central bank instead relying on economic data.
"We don't know what the timing or substance of any policy changes will be," Powell said. "We don't guess, we don't speculate and we don't assume."
Powell has long stressed the independence of the central bank and that its officials make their decisions based on data, not politics.
Even so, Trump's policies could make the Fed's job more difficult, given that the president-elect's combination of tariffs, tax cuts and mass deportation of undocumented immigrants is expected to boost prices by as much as 1 percentage point at a time when inflation is close to the Fed's goal of an annual 2% rate.
If Trump's policies reignite inflation, the Fed would be hard-pressed to continuing easing borrowing costs, and could instead be forced to raise rates to counter those inflationary pressures.
How low will rates go in 2024?
The Fed is expected to cut its benchmark rate to a range of 4.25% to 4.5% at its December meeting. That would reflect a full percentage point cut from its pre-September level, when the federal funds rate was at its highest in more than two decades.
But that doesn't mean mortgage rates or other borrowing costs will decline to that level, as lenders like mortgage companies and credit card companies make money by charging higher terms to consumers than the federal funds rate.
Even so, borrowers should see some relief. Already, credit card rates are slightly lower, although they still remain close to record highs, according to Schulz.
"While they'll almost certainly continue to fall in coming months, no one should expect dramatically reduced credit card bills anytime soon," he added. "Unless the Fed dramatically accelerates its pace of rate cuts, it'll still be a while before these reductions add up to more than just a few dollars per month coming off your bill."
Will mortgage rates drop?
Despite the Fed's September cut, mortgage rates have increased over the last 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 a September low of 6.08%.
Even though the Fed's rate decisions impact mortgage rates, home borrowing costs are also affected by economic trends such as unemployment. Meanwhile, Treasury yields have been on the rise due to concerns about rising U.S. debt and the presidential election.
"As long as investors remain worried about what the future may bring, Treasury yields, and, by extension, mortgage rates are going to have a tough time falling and staying down," noted Jacob Channel, senior economist at LendingTree.