The benchmark interest rate for lending is now 4.75 to 5 percent, following the Federal Reserve’s long-awaited announcement of a rate decrease on Wednesday, Sept. 18.
After the Federal Open Market Committee (FOMC) meeting, held eight times a year, the organization that serves as America’s central bank unveiled a 0.5-percent rate cut, bringing benchmark interest down from the previous 5.25-5.5 percent.
It’s the first time in four years that the Fed has announced a rate cut, after raising them steadily following the onset of the novel coronavirus pandemic to July 2023. In April 2020, rates were at just 0.05 percent, according to Statista.
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“Inflation has been easing toward normal levels, which Fed leaders expect to continue. But they are also under pressure to make sure high rates don’t slow the job market even more than it already has,” as described by The Washington Post.
“While some economists believe the Fed could have started cutting rates in July, the next few months are critical as the central bank attempts to bring the economy in for a ‘soft landing,’ maintaining its dual mandate of low inflation and maximum unemployment as it brings down rates,” The Hill reported.
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More rate cuts are expected to follow in the next two years, with the median interest rate likely to drop to 4.1 percent in 2025 and 3.1 percent in 2026.
However, Fed Chair Jerome Powell told a House committee this July that near-zero interest rates — of the kind that were in place between the global financial crisis of 2009 up to the pandemic years — are vanishingly unlikely to ever make a comeback.
On Tuesday, the U.S. dollar strengthened against most major currencies in anticipation of the Fed’s rate cut, as well as following better-than-expected retail sales data.
Commerce Department data showed on Tuesday that U.S. retail sales unexpectedly rose 0.1% in August, suggesting that the economy remained on solid footing through much of the third quarter.
Reuters contributed to this report.
