TLDR:
- Fed cut interest rates by 0.25 percentage points to 4.5%-4.75% range
- This is the second rate cut of 2024, following September’s larger cut
- Trump’s election victory won’t have immediate impact on Fed policy
- Inflation has dropped to 2.1%, close to Fed’s 2% target
- Markets expect another rate cut in December 2024
The Federal Reserve announced its second interest rate cut of 2024 on Thursday, November 7, lowering the federal funds rate by 0.25 percentage points to a range of 4.5% to 4.75%.
This decision comes less than two months after the central bank’s larger reduction in September and marks a continuing shift in monetary policy.
The rate cut announcement, made at 2 p.m. ET, was followed by Fed Chair Jerome Powell’s press conference, where he addressed various aspects of the decision and its context. Powell noted that while inflation has shown improvement, Americans “are still feeling the effects of high prices.”
This latest reduction in borrowing costs comes at a time when inflation has dropped to 2.1%, approaching the Fed’s target rate of 2%. The slowdown in inflation has allowed the central bank to ease the strict monetary policies it implemented during the pandemic era when inflation reached a 40-year high.
The immediate impact of this rate cut on consumers will be modest, according to Matt Schulz, LendingTree chief credit analyst. “For now, the effect of these cuts won’t be very noticeable,” Schulz explained, though he suggested that multiple rate cuts over time could provide more substantial relief for borrowers.
The timing of this rate decision is notable, coming just two days after former President Donald Trump’s election victory. When questioned about the potential impact of Trump’s upcoming presidency, Powell maintained the Fed’s stance of political independence, stating that the election results would not have a “near-term” effect on monetary policy decisions.
The mortgage market has shown mixed responses to the Fed’s recent actions. Despite September’s rate cut, mortgage rates have actually increased over the past month, with the average 30-year fixed-rate loan reaching 6.72%, according to Freddie Mac data. This rise from September’s low of 6.08% demonstrates that mortgage rates are influenced by various factors beyond Fed policy.
Looking ahead, financial markets anticipate another rate cut at the Fed’s December 18 meeting. This would bring the benchmark rate down to a range of 4.25% to 4.5%, representing a full percentage point reduction from pre-September levels.
Credit card holders might see some relief, though experts caution that changes will be gradual. While credit card rates have decreased slightly, they remain near record highs. Schulz advised that unless the Fed accelerates its pace of rate cuts, monthly savings for cardholders will be minimal.
The Federal Reserve’s decision was unanimous, and the policy statement noted that risks to both the job market and inflation were “roughly in balance.” This language remained consistent with the September meeting’s statement, suggesting stability in the Fed’s overall outlook.
Powell emphasized that the central bank’s decisions continue to be data-dependent rather than politically influenced. “We don’t know what the timing or substance of any policy changes will be,” he stated, adding that the Fed doesn’t “guess, speculate, or assume.”
The incoming Trump administration’s proposed policies, including tariffs, tax cuts, and immigration measures, could potentially add up to 1 percentage point to inflation. This scenario might complicate the Fed’s future decision-making process if inflationary pressures increase.
The Fed modified its language regarding inflation progress in the latest statement, noting that price pressures had “made progress” toward their objective, rather than the previous wording of “made further progress.” Powell clarified that this change wasn’t meant to signal concern about inflation stability.
Treasury yields responded to the announcement by trimming losses, while the yield curve flattened. The market reaction suggests investors are aligned with the Fed’s current policy direction and expectations for future rate adjustments.
The labor market has “generally eased” while remaining healthy, according to the Fed’s assessment. This balance between employment stability and economic growth continues to influence the central bank’s policy decisions.
Powell concluded the press conference by expressing confidence in the current economic situation, stating, “We think that the economy, and we think our policies, are both in a very good place.”
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