Jumbo-sized rate cut: Fed slashes rates by a half percentage point

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Republican presidential nominee and former U.S. President Donald Trump speaks at a campaign event in Flint, Michigan, on September 17. 

Former President Donald Trump suggested Wednesday the Federal Reserve’s decision to cut interest rates by half a point could be politically motivated.

When asked during a campaign stop in New York City for his reaction to the interest rate cut, Trump said it reflects either “the economy is very bad” or the Fed is “playing politics” with how it sets interest rates. 

“I guess it shows the economy is very bad to cut it by that much, assuming they’re not just playing politics. The economy would be very bad or they’re playing politics, one or the other. But it was a big cut,” Trump said. 

While the timing of the cut could seem like the Fed is assisting Vice President Kamala Harris’ bid for the White House by easing the financial burdens Americans are currently shouldering right before they cast their votes, the central bank makes its decisions irrespective of the political calendar.

“We never use our tools to support or oppose a political party, a politician, or any political outcome,” Fed Chair Jerome Powell told reporters in July, following the central bank’s decision to leave interest rates unchanged.

Even Kevin Hassett, who served as Chairman of the Council of Economic Advisers when Trump was president, said in a PBS News interview last week, “There’s been a whole bunch of bad data coming out and I think that a prudent Fed would start to risk manage by cutting rates now.”

“It’s unfortunate that it’s before an election because of the appearance of partisanship,” said Hassett, who has been floated as Trump’s potential pick for Fed chair if he wins the election.

He previously said it would be a “big mistake” for the Fed to cut before the election but said that he’s since changed his views on that because of the worsening economic conditions.

Vice President Kamala Harris delivers remarks at the Congressional Hispanic Caucus Institute's 47th Annual Leadership Conference on Wednesday, September 18, in Washington, D.C.

Vice President Kamala Harris said the rate cut announced by the Federal Reserve on Wednesday is “welcome news,” adding her focus is on keeping prices down.

Harris touted her economic proposal, which includes plans to cut taxes for more than 100 million working and middle-class Americans, affordable housing and the first-ever federal ban on corporate price gouging on food and groceries. 

Harris described her agenda as “the opposite of what Donald Trump would do as President,” before blasting him over his economic plans. 

“I know prices are still too high for many middle-class and working families, and my top priority as President will be to lower the costs of everyday needs like health care, housing, and groceries,” she said in the statement.

If the Fed continues to cut interest rates over the next year, that will push other interest rates down and save you money on your borrowing costs and reduce what you can earn on your savings.

The Federal Reserve’s half-point rate cut will result in lower interest rates on various consumer financial products and interest-bearing accounts. But don’t expect Wednesday’s single cut — or even another moderate cut or two this year — to necessarily drastically alter your financial life in every way.

For borrowers, “rates are not going to fall fast enough to bail you out of a bad situation,” said Greg McBride, chief financial analyst at Bankrate.com.

“And for savers, these rate cuts won’t erase the benefit you got from rising rates in 2022 and 2023. Savers with competitive high-yielding accounts will still be way ahead of the game.”

Read more here for a more specific look at how the Fed’s rate cutting will affect your credit cards, car loans, home loans, high-yield savings accounts, certificates of deposits and other financial accounts.

(L-R:) Speaker of the House Mike Johnson; Rep. Alexandria Ocasio-Cortez at the US Capitol in September.

Republican House Speaker Mike Johnson and Democratic Rep. Alexandria Ocasio-Cortez don’t tend to agree on much, but both were pleased with the Federal Reserve’s decision to cut rates by a jumbo half point.

The lower rates “helps us structurally,” Ocasio-Cortez told CNN’s Haley Talbot on Capital Hill Wednesday afternoon, shortly after the Fed announced its decision. “We need to finance very large infrastructure projects, from housing to roads and bridges. This is going to help with all of that.”

The rate cut, she added, “is long overdue.”

Meanwhile, Johnson told Talbot, “It’s welcome news for consumers.” However, he questioned the timing of it, saying it’s “a little suspect.”

“Right on the eve of an election? I don’t know. Count me as curious about it,” Johnson said.

Fed Chair Jerome Powell told reporters Wednesday that the election in two months was not given any consideration in central bankers’ discussions. “We’re not serving any politician, any political figure, any cause, any issue, nothing,” Powell said. “It’s just maximum employment and price stability on behalf of all Americans,” he added, referring to the Fed’s Congressional mandate.

A trader works on the trading floor at The New York Stock Exchange following the Federal Reserve rate announcement today.

Stocks ended a bumpy trading session lower as Wall Street continued to review the Federal Reserve’s latest interest rate decision and projections about the economy.

The Dow fell 103 points, or 0.3%, after jumping more than 300 points earlier in the day. The S&P 500 declined 0.3% and the Nasdaq Composite lost 0.3%.

Elsewhere, gold futures reached a fresh record high before retreating to settle at $2,570.70 a troy ounce.

The Federal Reserve on Wednesday cut interest rates by a jumbo half-point, marking its first rate cut since March 2020. While stocks initially jumped on the news, the trading session became volatile as investors worried that the large cut signals that the central bank is concerned that the US economy will weaken further.

Powell said at his post-meeting press conference that he believes the labor market remains healthy, and that the Fed cut rates by half a point to stay ahead of potential further weakness. He added that the Fed is not yet satisfied with the cooldown in inflation.

A risk of lowering rates is that as pressure eases off companies and consumers, inflation could rev up again. But on the other side, waiting too long to lower rates or doing so too slowly could help spur an economic downturn.

The Fed said it expects the unemployment rate to rise to 4.4% and remain at that level in its economic projections.

Traders expect the Fed to cut rates again at its November and December policy meetings, though they are divided on the size of the cuts, according to the CME FedWatch Tool. Powell said Wednesday that investors shouldn’t expect half-point cuts to be the central bank’s pace.

As stocks settle after the trading day, levels might change slightly.

President Joe Biden in the Oval Office at the White House on Tuesday, September 17.

President Joe Biden said Wednesday the combination of falling inflation and interest rates amount to an “important moment” in the post-Covid economic recovery.

“We just reached an important moment: Inflation and interest rates are falling while the economy remains strong,” Biden wrote on X shortly after the Federal Reserve slashed rates by half a percentage point. 

“The critics said it couldn’t happen – but our policies are lowering costs and creating jobs,” Biden wrote. “I’ll speak tomorrow about what this means for Americans.”

Biden is due to address the Economic Club of Washington on Thursday. 

US Federal Reserve chairman Jerome Powell during a press conference in Washington, DC, today.

During Federal Reserve Chair Jerome Powell’s press conference Wednesday, he spoke about two lesser-known kinds of interest rates: neutral and natural.

“Neutral” and “natural” rates of interest are often used interchangeably, but they refer to the same concept.

The term dates back to 1898 when Swedish economist Knut Wicksell wrote: “There is a certain rate of interest on loans which is neutral in respect to commodity prices and tends neither to raise nor to lower them.”

In other words, there’s a Goldilocks interest rate out there. One that isn’t so low that it ushers in inflation, yet not so high that it tips the economy into a recession. In theory, that perfect rate exists in the real world. And it’s likely the missing puzzle piece needed for the Fed to achieve a soft landing, where inflation is tamed but a recession is avoided.

But, as Fed Chair Jerome Powell pointed out Wednesday, it’s really difficult to uncover in practice.

It feels “significantly higher” than it was before the pandemic, he said. “How high is it? I just don’t think we know.”

Fed officials generally agree with Powell’s assessment that the natural interest rate has risen over the last five years. And on Wednesday they raised through forecast a touch higher to 2.9% from 2.8% in June, according to new median projections included in the Fed’s quarterly Summary of Economic Projections. That longer-term rate is lower than the central bank’s current target for interest rates of 4.75% to 5%.

A statue of an eagle is seen on the Federal Reserve building on September 17 in Washington, DC.

Inflation remains within striking distance of the Federal Reserve’s 2% target, and although the unemployment rate has risen a good deal this year, a recession has been avoided and doesn’t appear to be brewing, either.

So the Fed cutting rates today certainly sounds like officials took a victory lap. But Fed Chair Jerome Powell sought to make it abundantly clear that they didn’t.

“We’re not really at 2%,” Powell said Wednesday, referring to the nation’s inflation rate. “We’re certainly not saying mission accomplished or anything like that,” he said, adding that “we’re encouraged by the progress we have made.”

Last week, traders were pricing in an 86% chance the Federal Reserve would cut rates Wednesday by a quarter point. But by Monday, the majority of traders instead predicted the Fed would cut by a half point, which is what it did in the end.

But it begs the question: Did Fed officials give in to market pressure?

Asked if market expectations played any role in the Fed’s decision, Chair Jerome Powell gave a terse response, simply saying, “We’re always going to try to do what we think is the right thing for the economy at that time… And that’s what we did today.”

A trader works on the trading floor at The New York Stock Exchange (NYSE) following the Federal Reserve rate announcement, in New York City today.

Stocks struggled to find direction Wednesday afternoon as investors mulled over Federal Reserve Chair Jerome Powell’s comments on the labor market.

The Dow lost 22 points, or 0.05%. The S&P 500 rose 0.03% and the Nasdaq Composite added 0.2%.

Federal Reserve Chairman Jerome Powell speaks during a news conference today following the Fed’s decision to cut rates by half a point.

Former President Donald Trump said if reelected, he would try to exert direct power over the Federal Reserve’s monetary policy. He later backed off from that statement.

Fed Chair Jerome Powell said at a press conference Wednesday that the Fed will remain independent from political influence to ensure it can make the best decisions for the economy — even when they’re politically unpopular.

“Democracies around the world, countries that are like the United States, have independent central banks. And the reason is that people have found over time that insulating the central bank from direct control by political authorities avoids making monetary policy in a way that favors, maybe, people in office as opposed to people who are not in office,” Powell said.

“We do our work to serve all Americans. We’re not serving any politician, any political figure, any cause, any issue, nothing. It’s just maximum employment and price stability on behalf of all Americans.”

Powell said he strongly believes that independence will continue.

Residential housing is seen in the suburban area of northwest Reno, Nevada, on May 8.

Fed Chair Jerome Powell acknowledged Wednesday that while inflation has cooled across the economy, there’s one sector that has remained stubbornly hot: housing.  

“Housing inflation is the one piece that is kind of dragging a bit … It’s been slower than we expected,” he said during the Fed’s post-meeting press conference. 

But he expressed confidence that the problems of high rent and home prices will come down with time.

Asked about concerns that cutting rates could reignite demand and push prices higher, Powell noted the biggest problem with housing is something the Fed can’t control: the supply of available homes.

“Where are we going to get the supply? This is not something the Fed can really fix, but I think as we normalize rates, you will see the … housing cycle normalized.”

Stocks turned lower again Wednesday mid-afternoon, continuing the session’s volatile session as investors listened to Federal Reserve Chair Jerome Powell’s comments about the labor market.

The Dow fell 28 points, or 0.07% The S&P 500 declined 0.2% and the Nasdaq Composite lost 0.2%.

Powell stated that he believes the job market remains healthy and that the Fed’s half-point cut is a reflection of the central bank’s commitment to stay ahead of any worrying softness. But some investors have taken the large magnitude of the rate cut as a sign that the Fed is concerned about further weakening.

Federal Reserve Chairman Jerome Powell speaks during a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building today.

Some pundits have expressed concern that the Fed’s decision to cut rates so close to a presidential election is equivalent to placing its thumb on the scale. But Federal Reserve Chair Jerome Powell pooh-poohed that idea.

“This is my fourth presidential election at the Fed, and it’s always the same,” Powell said at a press conference Wednesday. “We’re always going into this meeting in particular and asking what’s the right thing to do for the people we serve. … It is never about anything else Powell said politics is never discussed at Fed meetings. And it takes time for the effects of Fed rate actions to spread through the economy so a rate cut in September may not make much of a difference to the US economy by the November 5 election.

“Our job is to support the economy on behalf of the American people,” Powell said. “We don’t put up any other filters. I think if you start doing that, I don’t know where you stop. So we just don’t do that.”

If you’re thinking the money printer at the Federal Reserve is about to start going brrrr again and borrowing costs are going to go back to the near-zero levels seen during the pandemic, you may be setting yourself up to be let down.

That’s according to Fed Chair Jerome Powell, who said Wednesday that “my own sense is that we’re not going back to that.”

But Powell didn’t rule it out entirely. “Honestly, we’ll find out,” he told reporters.

A housing development in Middlesex, PA, is shown on March 29.

Here’s how housing economists and other experts are reacting to the Fed’s decision to cut interest rates by a half percentage point and its impact on mortgage rates:

Half-point rate cuts aren’t going to be the new normal, Federal Reserve Chair Jerome Powell told reporters on Wednesday following the central bank’s decision to cut rates by an usually large half point.

“I do not think that anyone should look at that and say, ‘This is the new pace,’” Powell said, referring to the future size of cuts the Fed may put forth.

US Federal Reserve chairman Jerome Powell holds a press conference in Washington, DC, today.

Federal Reserve Chair Jerome Powell knows that plenty of people who can influence public sentiment — investors, the press and economists — are glued to his press conference Wednesday, paying attention to every single word he says.

So, when he started talking about the Fed’s focus on the unemployment rate as one reason the Fed cut rates aggressively, he followed up that statement with a reassurance that the job market is fine.

“The labor market is in solid condition, and our intention with our policy move today is to keep it there,” Powell said. “You can say that about the whole economy: The US economy is in good shape. It’s growing at a solid pace, inflation is coming down. The labor market is at a strong pace. We want to keep it there. That’s what we’re doing.”

Powell, however, also noted that the labor market is weakening and hiring is slowing, both of which “bear watching.” His explanation: America has reached “maximum employment.” That’s economics speak for: “There aren’t many more people left to hire.”

In its economic outlook, the Fed expected the unemployment rate to rise to 4.4% but remain at that level.

An exterior view of the New York Stock Exchange on September 18.

US stocks were higher but gave back some earlier gains on Wednesday as Federal Reserve Chair Jerome Powell addressed reporters’ questions in a post-meeting press conference.

The Dow rose 87 points, or 0.2%. The S&P 500 gained 0.4% and the Nasdaq Composite added 0.7%.

The Fed’s decision to cut interest rates by a half point suggests that it is worried about the state of the job market, which has showed signs of cooling in recent months. This is the first time the central bank has cut rates since the onset of the Covid pandemic in March 2020.

Generally, the Federal Reserve prefers to raise or lower interest rates by no more than a quarter point at an individual meeting unless there’s reason to believe that economic conditions will change substantially in the coming months.

So the decision to cut rates by a half point Wednesday, even though Fed officials have said throughout the year that they don’t foresee the economy entering a recession, was somewhat unusual.

Fed Chair Jerome Powell justified Wednesday’s decision, saying in a post-meeting press conference that people should “take this as a sign of our commitment not to get behind.”

In other words, Fed officials likely believe the unemployment rate may have risked shooting even higher had they not taken more serious action now.

For now, though, Powell said, “We’re not seeing rising layoffs and we’re not hearing that from companies.” But he warned, “that is something that’s getting ready to happen. So we’re not waiting for that.”

A person waits in a line for a prospective employer at a job fair on August 29 in Sunrise, Florida.

The jumbo-sized half-point rate cute suggests the Federal Reserve is worried about rising unemployment, former Fed officials told CNN. It also shows the Fed is getting increasingly concerned about the health of the US economy.

The Fed has a dual mandate: balance inflation and job creation. After aggressively raising its interest rate to combat inflation, job growth has slowed somewhat dramatically in recent months.

It “sends a message we are really concerned about the employment mandate,” said Narayana Kocherlakota, former president of the Minneapolis Federal Reserve. “The move in and of itself does leave open the question about whether the Fed knows something about labor markets that investors and the public don’t.”

William English, a former member of the Fed Open Market Committee, said the decision shows the Fed is “more worried the economy is going to slow.” 

 “Take out a little bit of insurance,” English said. “Get ready for an economy that might slow more than you thought.”

Job seekers attends a job fair held at the Amerant Bank Arena on June 26 in Sunrise, Florida. 

The US unemployment rate has risen substantially this year so far. At the start of the year, the unemployment rate was 3.7%. By July, it had jumped to 4.3%, the highest unemployment rate the nation has seen since fall 2021. Last month, it edged down slightly to 4.2%, but Federal Reserve officials don’t think will drop any more.

Instead, they see the unemployment rate hitting 4.4% by the end of this year, according to median forecasts included in the Summary of Economic Projections, also referred to as the “dot plot,” that was released at 2pm ET.

At the June meeting, officials thought the unemployment rate for this wouldn’t exceed 4%.

On the other hand, officials believe there will be more progress on the inflation front compared to June. Officials predict the Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, will cool to an annual rate of 2.3% this year versus the 2.6% rate they predicted in June. The Fed targets a 2% annual inflation rate, which officials believe will be achieved in 2026.

Meanwhile, the Fed’s go-to gauge was 2.5% in August.

US Federal Reserve chairman Jerome Powell speaks during a press conference in Washington, DC, today.

The decision to cut by half a percentage point, rather than by a more standard quarter point, telegraphs to the world that central bankers feel a sense of urgency to provide the US economy with swift relief from elevated borrowing costs.

The Fed has walked a fine line in taming price pressures without sacrificing America’s job market, an extremely difficult task because rate hikes function by deliberately cooling the economy. That tool wielded by the Fed is typically described as a sledgehammer, not a scalpel.

Despite inflation receding, jitters remain, mostly centered around the job market’s future now, rather than the possibility of inflation getting stuck or reigniting. That’s precisely why there were blaring calls in recent days for the Fed to kick off the rate-cutting cycle with a bang.

The unemployment rate ratcheted up relatively quickly over the past year, though from an unusually low point. Economists have widely said that whenever unemployment begins to rise, it tends to catch momentum and keep rising.

That has put into jeopardy a possible soft landing for the US economy — a scenario in which inflation is tamed without a sharp increase in unemployment. Such an outcome has only happened once in modern history, in the mid-1990s, so the Fed is within reach of a historic achievement.

The Federal Reserve cut interest rates for the first time in the Biden era after the White House spent the last three years grappling with Americans’ dissatisfaction with the cost of living.

The move raises new questions about the health of the economy and the impact on voters at the ballot box. But it is also fresh vindication for President Joe Biden, whose pandemic-era agenda ushered in trillions of dollars in government spending — which, when coupled with strong demand for goods, supply chain snarls and Russia’s war with Ukraine — drove inflation to a four-decade high.

The Fed said the cut signals inflation is under control. But it could also suggest the economy, which is showing signs of stress, is in need of a jolt. The Fed said job creation and inflation are “in balance,” and most mainstream economists agree a recession is not around the corner. But few economists believe the US economy is not out of the woods yet.

Traders work on the floor of the New York Stock Exchange on September 18.

Here’s how Wall Street is reacting to the Federal Reserve’s half-point interest rate cut:

U.S. Federal Reserve Chair Jerome Powell speaks to media during a press conference after a meeting of the Federal Open Markets Committee, at the Federal Reserve, in Washington, D.C., on July 31.

The Federal Reserve faced pressure to start cutting rates in July, but did not.

Some investors and economists pointed to rising unemployment and how the job market can sometimes take a turn for the worse on a dime. The central bank was still waiting for enough evidence that inflation had come under control, but Fed Chair Jerome Powell had said a weakening job market could speed up the timing of the first rate cut.

The pace of the job market’s slowdown seems to have done the trick. But it also begs the question: Should the Fed have cut rates in July? Clearly, some investors believe the Fed is behind the curve and the decision to cut rates by half a point fueled that fire even more. It’s a tricky predicament for the Fed, and even the fact that the decision wasn’t unanimous casts even more doubt over the soundness of the Fed’s decision-making.

“When will investors think the Fed is ahead of the curve and proactively exercising its ‘put’? This is the most important question because investors have been implicitly asking that — and hoping for this outcome — all summer long,” Jason Draho, head of asset allocation, CIO Americas, at UBS Financial Services, said in a recent analyst note.

He added that the Fed’s commitment to extending the US economy’s expansion with so-called “insurance cuts” to prevent a recession is key for investors’ confidence.

The US Federal Reserve is seen in Washington, DC on September 16.

If you’re happy about the Federal Reserve’s decision to opt for a jumbo cut today, here’s something else to celebrate: Even more cuts could happen before the end of the year.

That’s according to Fed officials’ median forecast for where they believe interest rates should be. Their forecast called for rates getting slashed by half a point more this year, according to the Summary of Economic Projections, also referred to as the “dot plot,” that was released at 2pm ET.

The Fed has two remaining meetings this year in November, right after Election Day, and December.

Michelle Bowman, governor of the US Federal Reserve, during the Institute for International Finance (IIF) Global Outlook Forum in Washington, DC, on April 17.

For 16 meetings that took place over the course of two years, each Federal Reserve official who voted on monetary policy decisions agreed on where interest rates should be.

That streak of unanimity ended on Wednesday, when Fed Governor Michelle Bowman voted to cut rates by a quarter point rather than the half point cut the majority of officials voted for, which went into effect today.

Bowman was the only official of the 11 that voted against the majority decision.

That doesn’t mean, though, that there weren’t heated debates among the other 11 officials at the two-day monetary policy meeting this week. If there, it will likely be revealed in three weeks, when the Fed releases a summary of what was discussed during this month’s meeting.

Bond yields declined Wednesday after the Federal Reserve cut interest rates by a whopping half-point.

The 2-year Treasury yield fell to 3.6%. The yield on the 10-year Treasury note slipped to 3.68%.

Stocks climbed Wednesday midday as investors cheered the Federal Reserve’s decision to cut interest rates by a half point.

The Dow rose 303 points, or 0.7%. The S&P 500 gained 0.7% and the Nasdaq Composite added 0.9%.

The Federal Reserve slashed interest rates aggressively Wednesday, announcing the first rate cut since March 2020.

The bold, but not unexpected, half-point move paves the way for lower borrowing costs on everything from mortgages to credit cards.

It marks a crucial milestone for the central bank’s historic inflation fight, which kept rates at a bruising 23-year high for more than a year.

An exterior view of the New York Stock Exchange today.

Stocks gained Wednesday midday, with less than an hour to go until the Federal Reserve’s interest rate cut decision.

The Dow rose 60 points, or 0.1%. The S&P 500 gained 0.2% and the Nasdaq Composite added 0.2%.

The Fed is slated to make its announcement at 2 pm ET.

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31 in Washington, DC.

The Federal Reserve wields a powerful tool.

Its benchmark lending rate, which influences borrowing costs broadly, either puts the US economy in a chokehold when rates are high, or it stimulates economic activity whenever rates are loosened. That’s how the Fed wrangles runaway inflation or rising unemployment. And now, after years of inflation taking the spotlight, the job market’s health has come into greater focus.

But with such power comes great scrutiny. An independent and apolitical agency, the Fed can nonetheless be subject to immense pressure from Wall Street, Capitol Hill and the White House. Under Fed Chair Jerome Powell, appointed in 2018 by then-President Donald Trump, then re-appointed by President Joe Biden, that has also been the case. But Powell has stayed the path, emphasizing at all times that the central bank’s decisions are data dependent.

“Jerome Powell’s Fed has navigated both market and political pressures rather well,” Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group, told CNN. “Bashing the Fed is sort of everyone’s pastime, but nothing in the economy has broken.”

Investors and lawmakers have called for the Fed to lower rates several times over the past year or so, citing impending doom in either the banking sector, the job market or housing if the Fed did not heed their demands.

But the Fed never did. Its policy decisions have all been guided by economic data.

Federal Reserve Bank Chair Jerome Powell during a news conference at the bank's William McChesney Martin building on May 1 in Washington, DC.

In addition to the Federal Reserve’s big decision on interest rates today, major news could also be made from what’s known colloquially as the “dot plot,” which will be released at 2 pm ET, when the Fed’s announcement on interest rates also comes out.

The dot plot refers to the Fed’s Summary of Economic Projections, a quarterly forecast on the economic outlook from all 12 regional Fed bank presidents and the seven members of the Fed’s Board of Governors.

Their forecasts are anonymous and are displayed simply as a dot on a plot — hence the moniker.

Among the projections Fed officials have to make about the economy for the remainder of this year, 2025, 2026 and over the longer run is where they believe interest rates should be to fulfill their mandate for price stability and maximum employment. In other words, the dot plot will reveal how many more rate cuts we could expect this year and further out in the future.

But there’s a major caveat: “These projections are not a committee plan or any kind of a decision,” Fed Chair Jerome Powell told reporters in June, when Fed officials last submitted forecasts on the economic outlook. The “committee” Powell mentioned refers to the group of 12 Fed officials who vote on interest rate decisions.

“As the economy evolves, assessments of the appropriate policy … will adjust in order to best promote our maximum-employment and price-stability goals,” Powell added.

For instance, at the end of last year, officials penciled in three cuts for this year, according to median projections from December’s SEP. But, at the June meeting, officials penciled in just one cut.

A for sale sign is displayed outside of a home for sale on August 16 in Los Angeles, California. 

The very real possibility of a rate cut from the Federal Reserve is fueling hopes that America’s sluggish housing market might soon turn a corner.

Mortgage rates have doubled since 2020, contributing to one of the most unaffordable housing markets in history. While the Fed doesn’t directly set mortgage rates, its actions affect borrowing costs throughout the economy.

The most apparent effect: An interest rate cut could help ease the upward pressure on mortgage rates, making one piece of the home buying equation more affordable. That could be good news for first-time home buyers and existing homeowners who have been hesitant to put their houses up for sale in a higher interest-rate environment.

However, it could also spell fiercer competition among home buyers.

Mortgage rates have already begun steadily falling in anticipation of the Fed’s expected Wednesday cut. According to Freddie Mac, the average 30-year fixed mortgage rate fell to 6.20% last week — the lowest level since February 2023, and down significantly from last year’s peak of 7.79%.

A single percentage point change in mortgage rates may not seem like a lot, but it can save home buyers hundreds of dollars in monthly payments.

Consider as an example a home sold for $422,600, the median sales price of a home in the US according to the National Association of Realtors. Assuming the buyer put down a 20% deposit at closing and has a standard 30-year fixed mortgage rate, that buyer could save more than $2,600 per year on interest payments if they lock in a 6% mortgage rate compared to 7%.

Read more here.

People shop at a grocery store on August 14 in Rosemead, California. 

While it was a steady (but grueling) journey getting inflation down from its 2022 peak of 9.1%, the bumpy first half of this year proved otherwise, vindicating the Federal Reserve’s patience.

In 2022 and 2023 “inflation was coming down without any major impact to employment conditions or the US consumer,” Oscar Muñoz, chief US macro strategist at TD Securities, told CNN. After that, Fed officials likely realized that “the level of interest rates after the July rate hike last year was probably enough for inflation to lose momentum while maintaining the economy,” Muñoz said.

Then came the dreaded bump that Fed Chair Jerome Powell had predicted long ago when describing inflation’s journey to the Fed’s 2% target. In January, inflation came in hotter than expected. Then it happened again, and again. By the time central bank officials gathered for their April 30-May 1 policy meeting, they had to admit in their statement that “in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

That rough patch is precisely why Americans have only recently begun to get some relief. Bond yields, which move in anticipation of the Fed’ decisions on rates, have come down over the past several weeks based on signs encouraging the Fed to cut rates, such as weaker-than-expected employment data and cooling inflation. That has resulted in tumbling mortgage rates, which are now down more than 1.5% from their two-decade high last fall.

Beth Hammack, who started her job as president of the Federal Reserve Bank of Cleveland on August 21, 2024, heads into the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, on August 22.

At the most high-stakes meeting for the Federal Reserve in years, there will be a new face at the table: Beth Hammack, president of the Cleveland Fed. And no one outside of the Fed has much of an idea as to her current views are on monetary policy.

Hammack, who spent the last 30 years working at Goldman Sachs, joined the regional Fed bank last month following the retirement of its former president Loretta Mester.

At every Fed meeting, 12 Fed officials vote, seven of whom are from the Fed’s board of governors. Aside from New York Fed President John Williams, the remaining votes are from an annually rotating panel of regional Fed presidents. 

This year, the Cleveland Fed has held one of the 12 votes, which means Hammack will cast a vote that will determine how big a cut the Fed puts forth at her very first monetary policy meeting.

And it’s not entirely out of the question that she could end up casting a tie-breaking vote for either a quarter-point cut or half-point cut. Heading into the meeting, traders were largely anticipating the latter, but a week ago the majority believed the Fed would cut by a quarter point. The recent pressure from markets may leave Fed officials torn over what to do at this meeting, which means every vote will carry even more weight.

Traders work on the floor of the New York Stock Exchange on September 18, 2024 in New York City. The Federal Reserve is expected to announce its first interest rate cut since March 2020.

Here’s what economists, investors and analysts are saying as they wait for the Federal Reserve to announce whether it will cut interest rates by a quarter- or half-point:

Shoppers carry bags in New York City on Friday, September 13.

A key driver of the economy remains intact, despite a slowing job market.

Sales at US retailers, which are adjusted for seasonal swings but not inflation, rose 0.1% in August from the prior month, the Commerce Department reported Tuesday. That was some unexpected good news about the economy’s health because economists projected retail sales to decline 0.2%. July’s big jump in retail spending was also revised even higher, according to the report.

Consumer spending is a crucial metric closely watched by Wall Street and the Federal Reserve, which is widely expected to slash interest rates at the conclusion of its two-day policy meeting on Wednesday. That’s because Americans’ spending accounts for about two-thirds of the US economy, so if they pull back sharply, then that would spell trouble for the country’s economic growth.

America’s job market has loosened up over the past year, with the unemployment rate rising to 4.2% in August, up from 3.8% a year earlier. That rapid increase sparked fears on Wall Street that the US economy could be heading for a recession. Consumer spending is heavily influenced by the state of the job market.

 A trader works on the floor of the New York Stock Exchange, on Wednesday, September 18, 2024.

Stocks fell Wednesday mid-morning as uncertainly loomed about whether the Federal Reserve will introduce an interest rate cut of a quarter- or half-point at the conclusion of its monetary policy meeting this afternoon.

The Dow fell 55 points, or 0.1%. The S&P 500 declined 0.1%. The Nasdaq Composite lost 0.09%.

The Marriner S. Eccles Federal Reserve building in Washington, DC, on June 25.

After all the hype that’s been brewing for over a year, you might think that once the Federal Reserve finally cuts interest rates the economy will look and feel completely different.

In reality, however, there’s not that much that will change at the drop of a hat.

Sure, the stock market could have some big swings the second the Fed releases its interest rate decision at 2 pm ET on Wednesday and when Fed Chair Jerome Powell speaks a half hour later. Mortgage rates and the interest rates Americans pay on a variety of loans will quickly drop as well.

But these two immediate effects are really just the tip of the iceberg. The bulk of the impact comes much later.

That’s because when the Fed lowers or raises rates, it takes a while for the full effect of those moves to be felt across the economy. Nobel Prize-winning American economist Milton Friedman referred to this as “long and variable lags.”

Read more here.

Traders in the two and five year options pit of the Chicago Board of Trade signal orders in Chicago, Illinois, on Tuesday, Sept. 18, 2007. The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, hoping to keep the U.S. from sinking into a recession sparked by fallout from the housing-market collapse.

It’s September 18 and the Federal Reserve is set to announce at 2 pm ET that it is cutting interest rates for the first time in a while.

That exact situation has actually happened before. On September 18, 2007, the Fed delivered a half-point rate cut to address turmoil in the housing market. The air was also rife with uncertainty over whether the Fed would roll out a quarter-point cut or slash rates by half a point — just like right now.

But, of course, the economy’s circumstances right now are a lot different than they were 17 years ago. The Fed’s September 2007 rate cut occurred a few months before the Great Recession, as new mortgages entering foreclosure began to climb and the job market also displayed concerning signs of weakness.

The situation right now isn’t as dire as it was back then. America’s housing market is struggling with an acute affordability crisis, but there isn’t a subprime mortgage problem that’s threatening the country’s financial system. And yes, the job market has slowed over the past year, but job growth remains healthy and unemployment is still at historically low levels. In July and August 2007, the US economy lost jobs for the first time in four years.

Stocks sky-rocketed after the Fed cut rates by half a point in September 2007, with the Dow up 2.5% and the S&P 500 rising by nearly 3%.

Stocks were mixed Wednesday morning as investors awaited the Federal Reserve’s latest interest rate decision.

The Dow fell 53 points, or 0.1%. The S&P 500 added 0.02% and the Nasdaq Composite ticked up 0.2%.

Investors are divided about whether the Fed will announce a quarter- or half-point rate cut at 2 pm ET. While the central bank generally tends to telegraph its next move before its policy meetings, its signals have been less clear this time around.

Investors leaned toward a quarter-point cut last week after data showed that consumer inflation slowed to its lowest rate since February 2021.

But some current and former Fed officials in recent weeks have signaled that they support a half-point cut, and bets on such a move have gained traction on Wall Street. And while the US labor market remains strong historically, the Fed has warned that more cooling there could spell trouble for the economy.

Traders see a 61% expectation that the Fed will ease rates by half a point, versus a 29% chance for a quarter-point cut, according to the CME FedWatch Tool.

Wall Street will be locked in to Fed Chair Jerome Powell’s press conference at 2:30 pm ET for clues about how much and how quickly the central bank expects to cut rates over the coming months.

Existing homes and homes under construction in Tucson, Arizona, on September 16.

A single percentage point change in mortgage rates may not seem like a lot, but it can translate into thousands of dollars of savings per year for the average US home buyer.

Mortgage rates were already falling ahead of the Federal Reserve’s expected interest rate cut. The average 30-year fixed mortgage rate fell to 6.20% last week, the lowest level since February 2023.

Sean Grzebin, head of consumer originations at Chase Home Lending, told CNN he’s already seeing an uptick in home buying demand due to the recent drop in rates.

“There’s been a lot more activity than we would typically see this time of year because of optimism around mortgage rates,” he said.

Grzebin said that Fed Chair Jerome Powell’s commentary will likely affect whether mortgage rates drop even further.

“If the Fed comes out with a more cautious tone, then I think rates will settle in around where they are now,” he said. “If it looks like there will be more cuts than signaled so far, I think you’ll see more of an impact on mortgage rates.”

While the Fed doesn’t directly set mortgage rates, its actions affect borrowing costs throughout the economy.

People who follow the Federal Reserve’s monetary policy decisions are obsessing over whether the central bank will cut interest rates by a quarter point or a half point when it releases its decision at 2 pm ET on Wednesday.

Generally, the Fed prefers to make interest rate moves in quarter-point increments. But when it looks like there’s an imminent threat to the economy, typically either from prices rising too quickly or the labor market cooling too much, central bankers opt for larger interest rate moves at a single meeting.

A week ago, traders were convinced the Fed would cut by a quarter point. But now the majority of them are leaning toward a half point, according to fed funds futures. So if the Fed doesn’t produce what they expect, that risks disappointing markets and sparking a major selloff.

The ironic thing about this is that for most Americans, the difference between a quarter-point cut versus a half-point cut at this meeting will be pretty insignificant.

That’s because it could take years before the full effects of an interest rate cut are felt across the economy. And even though the interest rates you pay to borrow money will go down over time with a rate cut, it won’t necessarily drop the second the Fed cuts.

People walk past the Bank of England in the financial district of London, UK, on August 14.

In addition to the Federal Reserve announcement on Wednesday, several other central banks across the world are making rate decisions this week as inflation returns to more normal levels.

The Bank of England is likely to hold rates steady Thursday after cutting borrowing costs for the first time since Covid last month.

The Bank of Japan is set to announce its decision Friday. Unlike policymakers in other global economies, it has raised rates in recent months as inflation has returned to Japan’s economy following three decades of falling consumer prices. BOJ Governor Kazuo Ueda is expected to keep rates at 0.25%.

Central bankers in Norway, Taiwan, Turkey, South Africa and Ukraine are also set to announce their latest policy moves on Thursday.

A television station broadcasts US Federal Reserve Chair Chair Jerome Powell speaking in Jackson Hole, Wyoming, on the floor of the New York Stock Exchange on August 23.

The Federal Reserve’s decision is just a few hours away and there remains an unusual amount of uncertainty over what officials will do.

There’s no doubt the Fed is cutting for the first time since Covid — but by how much remains up for debate.

In recent days, there has been a break in favor of going big, with a 65% chance priced in to the futures market of a half-point cut. There is a 35% chance of a more typical quarter-point cut.

Going with a bigger cut could hint at underlying concerns among Fed officials about the health of the economy.

An exterior view of the Marriner S. Eccles Federal Reserve building on January 21 in Washington, DC.

It’s a pivotal week for the US economy, with the Federal Reserve expected to cut interest rates for the first time since 2020. The move would mark a major milestone both for the central bank’s long fight with inflation and for Americans battling a higher cost of living for the past two years.

But it’s also an expectation that is coming to fruition much later than the Fed and Wall Street expected in the beginning of the year.

Fed officials and investors have long anticipated that borrowing costs would come down in 2024 — at some point — according to their economic forecasts. At the end of last year, the air was brimming with hope that the Fed would start cutting rates early in 2024, easing pressure not just for consumers, but also for businesses of all sizes hampered by higher costs. A spring rate cut seemed to be in the cards around the turn of the year, according to the futures market, and most major Wall Street banks estimated the first rate cut’s arrival sometime before the summer.

But nine months in, rate cuts still haven’t happened, drenching Wall Street’s parade and leaving US consumers squeezed by elevated interest rates. All that could start to change this afternoon.

Lael Brainard, director of the National Economic Council, said Tuesday the US economy has reached “an important turning point” where the inflation surge has largely ended.

The speech came just one day before the Federal Reserve is set to cut interest rates for the first time since Covid. 

Formerly number two at the Fed, Brainard said lower interest rates would benefit home seekers, noting: “We need more homes, ultimately, to get to greater affordability. That will be more possible in an environment that is more supportive in terms of the market interest rates.”

A person walks along Wall Street near the New York Stock Exchange on September 3.

Wall Street remained optimistic but jittery Wednesday morning ahead of the opening bell.

Futures on the S&P 500 were up just 0.1% and Nasdaq futures gained 0.2%. Dow futures were up around 0.1%.

The S&P 500 and the Dow both hit new record highs this week as bets grew for a half-point cut from the Federal Reserve.

But with just hours to go before the Fed’s announcement at 2 pm ET, traders remain divided over the issue of the exact size of the central bank’s rate reduction. Treasury yields moved up early Wednesday and the dollar fell.

Zillow's website is seen on on a laptop in 2023.

The US Department of Housing and Urban Development announced a partnership with Zillow on Tuesday to increase access to home buying counselors just as falling interest rates could ease borrowing costs for those interested in buying a new home.

As part of the collaboration, Zillow, which, according to HUD, reaches 217 million visitors a month, will display information about HUD’s housing counseling services to those shopping for a home on the site.

“Every day, HUD’s counselors provide thousands of Americans with trusted advice about buying a home, avoiding foreclosure, and locating and sustaining affordable housing. But we know we can help even more people,” said HUD Acting Secretary Adrianne Todman in a statement on Tuesday.

The announcement follows the Biden-Harris administration’s announcement in May that it would award nearly $40 million to expand HUD’s housing counseling services.

Housing has become a prominent issue in the 2024 US presidential election as record-high home prices coupled with elevated mortgage rates have contributed to a home affordability crisis.

“We know that we have a shortage of homes and housing,” said Vice President Kamala Harris during last week’s presidential debate. “The cost of housing is too expensive for far too many people.”

The Chicago skyline is seen across Lake Michigan on February 18 in Whiting, Indiana. 

The recent dip in mortgage rates has made mortgage payments more affordable than rent in nearly two dozen of the largest US cities, according to a recent Zillow analysis.

New Orleans, Chicago and Pittsburgh offer the largest monthly mortgage payment savings compared to rent, assuming a buyer can afford a 20% down payment, according to the real estate company.

Mortgage rates have doubled since 2020, contributing to one of the most unaffordable housing markets in history, but have been steadily falling in anticipation of a Federal Reserve interest rate cut. According to Freddie Mac, the average 30-year fixed mortgage rate fell to 6.20% last week — down from this year’s peak of 7.22%, hit in May.

While the Fed doesn’t directly set mortgage rates, its actions affect borrowing costs.

Nationwide, the monthly payment on a typical home purchase has fallen by more than $100 since May, according to Zillow.

However, additional costs aside from monthly mortgage payments, such as taxes, insurance, and maintenance costs, should be considered before buying a home.