The Federal Reserve is expected to cut interest rates for the second time this year on Thursday, a decision that comes less than two months after a surprisingly steep cut in September.
The Fed is expected to cut borrowing costs by 0.25 percentage points, or half the size of its September cut, according to forecasts from economists surveyed by FactSet. This would reduce the federal funds rate – the interest rate that banks charge each other to borrow money – to a range of 4.5% to 4.75% from the current level of 4.75% to 5%.
With the Federal Reserve's preferred inflation measure Fell to 2.1% last monthSlightly short of the Fed's 2% target, the central bank is easing the brakes it imposed when inflation reached a 40-year high during the pandemic. Higher borrowing costs have made it more expensive to buy everything from homes to cars.
Experts say if the Fed cuts rates by 0.25 percent on Thursday, as anticipated, the move would provide some additional relief for consumers, although the initial benefit would be small. The Fed is expected to continue cutting rates at its next several meetings, which could lead to big savings for borrowers.
“Once a few more cuts are made over the next few months, the impact will be magnified enough to move the needle for the average person struggling with debt,” Matt Schultz, chief credit analyst at LendingTree, said in an email. “However, the impact of these cuts will not be very noticeable right now.”
Here's what to know about Thursday's Fed meeting.
Is the Fed going to cut interest rates?
Yes, the Fed is expected to cut its benchmark rate by 0.25 percentage points on Thursday, Nov. 7, according to economists surveyed by FactSet.
“Strong productivity growth as well as ongoing price and wage growth decelerations will be offset by a 50 bps 'catch-up' rate cut in September followed by a 25 bps rate cut after the election,” said Gregory Daco, chief economist at EY. “The Fed should support a gradual recalibration of policy.” A report dated 31 October.
Deco expects the Fed to cut rates by an additional 0.25 percentage points at each meeting through June 2025. This would bring the federal funds rate to 4.4% in December and 3.4% in June.
What time is the Fed rate decision?
Fed will announcement of Its decision at 2 pm ET on November 7, followed by a press conference with Fed Chairman Jerome Powell at 2:30 pm ET.
The next Fed rate decision will be announced on December 18.
How low will rates go in 2024?
The Fed is expected to cut its benchmark rate to a range of 4.25% to 4.5% at its December meeting. This would reflect a cut of a full percentage point from pre-September levels, when the federal funds rate was at its highest in more than two decades.
But that doesn't mean mortgage rates or other borrowing costs will fall to that level, because lenders like mortgage companies and credit card companies make money by charging consumers longer terms than the federal funds rate.
Still, borrowers should get some relief. According to Schultz, credit card rates are already down a bit, although they are still near record highs.
“While these will certainly continue to decline in the coming months, no one should expect credit card bills to drop dramatically in the near future,” he said. “Unless the Fed dramatically accelerates the pace of rate cuts, it will still be some time before these cuts add more than a few dollars per month to your bill.”
Will mortgage rates go down?
Despite the Fed's September rate cuts, mortgage rates have increased over the past month, according to Freddie Mac, with the average interest rate on a 30-year fixed rate loan hovering around 6.72%. This is higher than the September low of 6.08%.
Even though the Fed's rate decisions affect mortgage rates, household borrowing costs are also affected by economic trends such as unemployment. Meanwhile, Treasury yields are rising on concerns about rising US debt and the presidential election.
“As long as investors remain concerned about what may happen in the future, it will be difficult for Treasury yields and, by extension, mortgage rates to fall and stay down,” said Jacob Channell, senior economist at LendingTree.