• The Federal Reserve cut interest rates by 25 basis points in October 2024, marking the second rate cut in less than two months.
• The US economy is showing signs of improvement, with inflation falling to 2.1% and the Federal Reserve aiming to bring it down to its 2% target.
• The federal funds rate now stands in the range of 4.5% to 4.75%, down from the previous range of 4.75% to 5%.
The Federal Reserve has taken another step to aid the struggling US economy. In October 2024, the central bank opted to cut interest rates for the second consecutive month, slashing them by 25 basis points. This move comes as inflation slowly retreats back towards the Fed’s 2% target.
Background on Interest Rate Cuts
After keeping rates steady for four years, the Federal Reserve cut interest rates in September 2024 for the first time since 2020. That initial 50 basis point cut was followed by another 25 basis point slash in October. The federal funds rate, which governs interbank lending, now sits between 4.5-4.75%.
Why the Fed is Cutting Rates
The Fed hopes to continue the positive momentum in the economy. Inflation skyrocketed to a 40-year high during the pandemic but has since declined to just above 2%. The back-to-back rate cuts are meant to keep inflation moving lower. The central bank also aims to offset any economic turmoil from the 2024 presidential election.
Impact on the Economy
The full effects of the interest rate cuts will take time to materialize. Lower rates make borrowing cheaper, which can stimulate spending and investment. This monetary stimulus takes pressure off consumers and businesses. As a result, the cuts pave the way for stronger economic growth.
Looking Ahead
With inflation cooperating so far, the Federal Reserve is likely to continue reducing interest rates. The central bank must strike a delicate balance between controlling inflation and keeping the economy growing. If inflation remains around 2%, expect more rate cuts in the coming months.
