The Federal Reserve decided to go big with its first interest rate cut in four years, dropping the Fed Funds Rate by 50 basis points. It also signaled that more cuts are on the way, projecting a further 50 basis point drop by the end of 2024 and another 100 basis point reduction by the end of 2025. Jerome Powell referred to the change as a "recalibration" in the Fed's policy stance.
This recalibration shows that the Fed is shifting its focus away from fighting inflation and is now focusing more on supporting employment. Inflation has cooled significantly in the last two years and is now approaching the Fed's 2% goal, but unemployment is trending up. The Fed hopes that lower interest rates will help encourage more borrowing and more economic activity.
This change will provide immediate relief to businesses with variable rate debt and to consumers who have credit cards balances or are looking to buy a new car. And mortgage rates already dropped in anticipation of the Fed's rate move and could continue dropping with the outlook of the lower future rate path. However, savers will now get lower returns on money as interest rates on high-yield savings accounts and certificates of deposit adjust to the new lower rate environment.