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The Federal Reserve has announced a quarter-point cut in interest rates, marking the second reduction since the central bank began lowering borrowing costs in September. The decision was made in light of the recent U.S. presidential election and is expected to provide further relief for Americans from the high cost of credit cards, auto loans, and other forms of debt. The new interest rate will now hold in a target range of 4.5-4.75 percent, the lowest since spring 2023.
The decision was influenced by slower inflation and a cooling job market. However, the future of rate cuts remains uncertain due to the potential impacts of president-elect Donald Trump’s proposed policies, such as tax cuts, deregulation, stiff across-the-board tariffs, and mass deportations. The full scope of these plans and their potential impact on the U.S. economy is not yet clear.
Despite the recent rate cuts, consumers are likely to continue feeling the pinch of historically high financing rates. The average credit card annual percentage rate (APR) is currently hovering at 20.5 percent, up from 16 percent during the pandemic. However, the recent rate cuts are expected to provide some relief for borrowers.
The U.S. economy appears to be on solid footing, with unemployment at 4.1 percent, job growth picking up, and a 2.8 percent growth in the third quarter of this year. However, the Fed's future moves are becoming increasingly uncertain due to the recent economic surprises and the potential inflationary impact of Trump's policies.
According to CNN, William English, a former senior Fed adviser, believes that another rate cut next month seems less likely but expects Fed policymakers to follow through with it because borrowing costs still have a tight grip on the economy.