On November 7, 2024, after its two-day policy meeting, the Federal Reserve announced its second interest rate cut of the year, lowering the federal funds rate from 4.75%-5.00% to a new range of 4.50%-4.75%. This reduction is part of the central bank’s efforts to address a slowing economy and adjust monetary policy to support growth and stability better. After keeping rates steady since early 2022, this year’s cuts signal a clear shift in the Fed’s approach to stimulating economic activity.
Why the Fed Cut Rates Again
The Federal Reserve’s decision to lower rates for the second time in 2024 is driven by concerns about maintaining economic momentum. On October 4th, the September 2024 jobs report revealed 254,000 new jobs, exceeding expectations of around 150,000. Additionally, the unemployment rate dropped to 4.1%, indicating some improvement in the labor market.
With inflation near the Fed’s 2% target and a steady but cautious economic outlook, the Federal Reserve cut rates to support continued growth. Although the labor market showed some strength with job gains and a slight drop in the unemployment rate, the Fed reduced borrowing costs to further stimulate spending and investment, aiming to prevent any future economic slowdown.
Economic Impact and Market Reactions
The rate cut is expected to positively impact consumers and businesses by lowering borrowing costs, stimulating activity across housing, consumer spending, and business investment. Reduced mortgage rates may help revive the housing market, and businesses could see lower loan costs, encouraging expansion and hiring.
In financial markets, the rate cut could make assets such as cryptocurrencies and stocks more attractive, as investors may become more optimistic about future economic growth. However, it’s important to remember that past performance is not an indication of future results.
What’s Next for the Federal Reserve?
The Fed’s next policy meeting is set for December 17-18, 2024, and experts are divided on whether more rate cuts are forthcoming. While the Fed has shown a willingness to ease monetary policy to support economic growth, future decisions will depend on key economic data, including employment and consumer spending. The Fed is taking a cautious, “meeting-by-meeting” approach as it navigates the evolving economic landscape.
To learn more about the Federal Reserve and why interest rates matter, check out the article below!
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