The Federal Reserve went big today, cutting the federal funds rate for the first time in four years with a half-percent reduction, the biggest single cut since 2008. After weeks of speculation, the Federal Open Market Committee lowered the federal fund rate to 4.75% to 5%.
The decision signals the end of the central bank's three-year fight against inflation. The Fed has held rates at a historic high after raising them 11 times to try to bring soaring inflation under control. Inflation has fallen from its peak of 9% annual growth but is still higher than the Fed's goal of 2% year over year. With inflation coming closer to its goal, the Fed has shifted its focus to bolster a softening job market by lowering interest rates.
This first interest rate cut is unlikely to offer immediate relief to most Americans, according to experts. A fraction of a percentage point won't make borrowing significantly less expensive.Â
"The rate hikes didn't slow the economy as much as we thought, and the rate cuts aren't going to stimulate it much as some people think," Robert Fry, chief economist at Robert Fry Economics, told CNET.
However, if the Fed continues to reduce interest rates, as it's expected to do through the end of this year and throughout 2025, the impact could become more significant.
Credit card APRs are likely to decline slightly, although this won't provide much relief as credit card debt remains expensive. Meanwhile, savings rates on CDs and high-yield savings accounts will likely drop in response. And mortgage rates have already started falling, but not enough to make homebuying affordable. We'll update this story after Fed Chair Jerome Powell's news conference at 2:30 p.m. ET.
