The Federal Reserve has cut rates by a quarter point, giving some relief to consumers with pricey debt but experts say borrowers feeling the pinch will have to wait some time for a reprieve.
The cut was in line with economists expectations, bringing the federal funds rate down to a range of 4.5% to 4.75% from its previous 4.75% to 5% level.
The Federal Reserve is walking a tight balance to tame inflation while not hurting the job market[/caption]
Federal Reserve Board Chair Jerome Powell is expected to hold a press conference at 2pm[/caption]
Bankrate’s chief financial analyst Greg McBride has urged consumers to pay off expensive credit card debt[/caption]
The move comes after the Fed cut interest rates by a half percentage point in September, marking the first time the central bank cut rates since 2020.
With inflation cooling in the economy, analysts say the Fed Reserve is slowly lifting the brakes it applied on the economy during the pandemic when prices hit a 40-year high.
While it will provide some relief to consumers, experts say the impact will be small and consumers will have to wait for three to four interest rate cuts to feel any noticeable relief.
In a statement, the Fed said it was “attentive” to the risks of its dual mandate: achieving maximum employment and keeping inflation at 2%.
The committee noted inflation had come down but still remains “somewhat elevated”.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” The Fed said in a statement announcing the cut.
“Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.”
The announcement comes after the Federal Reserve held a two day meeting, and marks the first rate cut since former President Donald Trump was re-elected on Tuesday night.
Bankrate’s Chief Financial Analyst Greg McBride told The U.S. Sun the smaller rate cut this month has likely come following recent strong economic data meaning central bankers can “be more deliberate” in their push to stimulate the economy.
“It gives them the ability to revert back to smaller point cuts, more time, it also gives the example to see what is the trend with inflation and the labor market which are the key economic indicators,” McBride said.
While inflation is moderating, McBride said shoppers will still feel the pinch at the grocery check out.
But an increase in wages and income may mean households have stronger purchasing power over the next few months.
McBride said wage growth had begun to outpace inflation mid-2023 restoring some buying power for consumers but that it would take “a lot more time of economic expansion” to help close that gap.
“The thing about lower inflation is that it doesn’t mean prices are coming down, it just means they’re not going up as fast,” McBride said.
The struggling of households contending with high prices is very real and that does not get fixed overnight
Greg McBride
“The reality is we’re not going back to 2020 prices but continued growth of income and more modest inflation can help households restore some of their buying power.”
