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Today’s number: half a point.
That is how much the Federal Reserve cut the Federal Funds Rate, their benchmark short-term interest rate, at their meeting on Wednesday, September 18.
This is the first time they’ve cut rates in four and a half years, ever since they slashed rates to 0 at the start of the pandemic. It marks the beginning of the process of unwinding the large rate hikes they imposed in 2022 and 2023 to help tame inflation.
This was bigger than their typical quarter-point cut, and so it sent a clear signal that they are willing to move quickly to provide support to the labor market now that they are feeling more confident inflation is under control.
Because investors were expecting a rate cut, it was mostly already priced into many parts of the bond market. Mortgage rates, for instance, had already dropped down below 6.2 percent in the week before this meeting.
In fact, on Wednesday, mortgage rates ticked back up slightly. The most likely reason is that at the press conference after the meeting, Fed Chair Jerome Powell didn’t sound overly concerned about recession risks and overall seemed to suggest that jumbo half-point cuts like this one will remain the exception, not the rule.
Still, altogether, this was a welcome, big first step toward relaxing monetary policy from its restrictive stance of the past couple of years back to a more neutral level.
Additional reading
- Mortgage news daily for 30-year mortgage rates
- Federal Reserve’s FOMC statement
- Fed Chair Jerome Powell’s press conference opening statement
Jeff Tucker is the Principal Economist for Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.
