Marking the first rate cut in over four years, the Federal Reserve cut its benchmark interest rate by half a percentage point on Wednesday, according to AP News. This shift comes after more than two years of high rates aimed at controlling inflation. The Fed's key rate now stands at around 4.8%, down from 5.3%. At the same time, inflation has dropped from its 9.1% peak in mid-2022 to 2.5% as of August—not far off from the Fed’s 2% target. Further rate cuts could come in the near future as well. Policymakers at the Federal Reserve indicated that they expect to cut rates by an additional half-point in their final two meetings this year, and four more rate cuts are expected in 2025.
Rate cuts by the Fed should, over time, lead to lower borrowing costs for mortgages, auto loans and credit cards, boosting Americans’ finances and supporting more spending and growth. Homeowners will be able to refinance mortgages at lower rates, saving on monthly payments, and even shift credit card debt to lower-cost personal loans or home equity lines. Businesses may also borrow and invest more. Average mortgage rates have already dropped to an 18-month low of 6.2%, according to Freddie Mac, spurring a jump in demand for refinancings.
