On Thursday, the Federal Reserve’s Federal Open Market Committee (FOMC) announced that it would lower the federal funds rate by 25 basis points (bps), or 0.25%, because of “somewhat elevated” inflation and an unemployment rate that “moved up but remains low.”
The rate is now 4.5% to 4.75%, down from 4.75% to 5%. A lower federal funds rate, or borrowing rate that banks charge each other, means lower borrowing costs on credit cards and personal loans — so there’s a ripple effect that could directly affect your wallet. Banks decide individually how to respond to rate cuts.
The news aligned with analyst expectations.
“We continue to expect the Fed to ease policy by 25bps at every meeting through June next year amid resilient but moderating growth and cooling labor market trends,” EY chief economist Gregory Daco told Entrepreneur in an emailed statement ahead of the Fed’s announcement.
The Fed previously cut rates by half a point in September, in its first reduction in four years. The next FOMC meeting, scheduled for December 17 through 18, is the last one of the year; Daco, as well as EY colleague and senior economist Lydia Boussour, both expect another rate cut of 25 bps then.
Federal Reserve Chair Jerome Powell. Photographer: Al Drago/Bloomberg via Getty Images
Daco wrote that after the Fed cut rates by an “outsized” 50 bps in September, it would opt for a more “gradual recalibration” in November because of “ongoing disinflation and softening labor market momentum along with strong productivity growth.”
Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management, also told Entrepreneur in September that the 50 bps cut in that month “creates some breathing room to go at a slower (or every-other-meeting) pace” for subsequent meetings.
The CME FedWatch Tool, a measure of the latest probabilities of FOMC rate changes, agreed with Daco and Ausenbaugh’s predictions of a slower rate cut pace. It placed the likelihood of a 25 bps cut in November at 99.1% before the decision was announced.
Related: ‘Stage Is Set:’ EY Senior Economist Expects Three Rate Cuts Before the End of the Year