Payam Javan: The Federal Reserve is expected to cut interest rates for the first time in four years, marking a shift in U.S. economic policy that could affect both consumers and businesses. Since March 2022, the Fed has been aggressively raising rates to combat inflation, which has increased borrowing costs across the board, from credit cards to auto loans. Although a rate cut will provide some relief, financial experts like Greg McBride caution that a single reduction won’t significantly ease the burden for most consumers. Instead, the cumulative effect of multiple rate cuts over time will be more impactful, with predictions varying on how quickly or slowly the Fed will move.
Investors are anticipating that the central bank will kick off the easing cycle with a half-point cut, potentially followed by further reductions totaling 250 basis points over the next year. If these forecasts are accurate, the benchmark federal funds rate, currently at 5.25% to 5.5%, could drop as low as 3% by mid-2025. However, there are concerns that the Fed will proceed more cautiously, given the strength of the U.S. economy, as evidenced by a projected 2.5% growth in the third quarter. Some financial institutions, such as Goldman Sachs, expect the Fed to opt for modest cuts to prevent triggering a recession, a move supported by cautious comments from Fed officials.
For consumers, the impact of rate cuts will be felt differently depending on the type of debt they hold. Mortgage rates, which are indirectly influenced by the Fed’s actions, have already decreased slightly, though they are not expected to return to pre-pandemic lows. Meanwhile, borrowers with credit card debt and auto loans may experience only gradual relief from sky-high interest rates. On the other hand, savers who have benefited from higher yields in savings accounts may see those rates decrease as banks adjust to the Fed’s policy changes. At the same time, the stock market has generally performed well this year, with many experts noting that lower interest rates could provide a boost, though short-term fluctuations are likely.
