With inflation continuing to cool, the Fed is set to cut interest rates for a second time this year, according to the Associated Press.
On Thursday, the Fed’s policymakers, led by Chair Jerome Powell, are on track to cut their benchmark rate by a quarter point, to about 4.6%, after having implemented a half-point reduction in September. Economists expect another quarter-point rate cut in December and possibly additional such moves next year. Over time, rate cuts tend to lower the costs of borrowing for consumers and businesses.
The Fed is reducing its rate for a different reason than it usually does: It often cuts rates to boost a sluggish economy and a weak job market by encouraging more borrowing and spending. The economy is growing briskly, however, and the unemployment rate is a low 4.1%.
Instead, the central bank is lowering rates as part of what Powell has called “a recalibration” to a lower-inflation environment. When inflation spiked to a four-decade high of 9.1% in June 2022, the Fed proceeded to raise rates 11 times — ultimately sending its key rate to about 5.3%, also the highest in four decades, but in September, year-over-year inflation dropped to 2.4%, barely above the Fed’s 2% target and equal to its level in 2018.
With inflation having fallen so far, Powell and other Fed officials have said they think high borrowing rates are no longer necessary. High borrowing rates typically restrict growth, particularly in interest-rate-sensitive sectors such as housing and auto sales.
