The Federal Reserve has reduced its benchmark interest rate by half a percentage point, marking the first rate cut in over four years. This move aims to ease borrowing costs and stimulate economic growth, reflecting confidence in managing inflation, which has dropped to 2.5% from its 9.1% peak in June 2022. The cut follows a series of rate hikes that helped curb inflation but also led to rising borrowing expenses for consumers.
As inflation is now close to the Fed’s 2% target, the central bank’s focus has shifted to supporting a weakening labor market, where unemployment has risen to 4.2%. Fed Chair Jerome Powell emphasized the importance of maintaining economic growth while ensuring a stable job market.
The rate cut may lead to lower borrowing costs for mortgages, auto loans, and credit cards, offering potential relief for businesses and consumers alike. However, many experts believe mortgage rates have already adjusted in anticipation of the Fed’s decision. As the economy slows, this shift could bolster consumer spending and encourage investment in the months leading up to the presidential election.
