Impact of the Fed's interest rate cut.

Amid cooling employment and inflation in the US, the Federal Reserve (FED) cut interest rates by 0.5%, beginning a cycle of monetary easing.

Further cuts are possible.

According to CNBC News, this is the Fed's first interest rate cut since 2020. The Fed chose to cut the benchmark interest rate (0.5%) to a range of 4.75%-5% based on developments in inflation and risk balance. Fed policymakers forecast that interest rates could continue to fall by another 0.5% by the end of this year, another 1% in 2025, and another 0.5% in 2026 to bring the benchmark rate to a range of 2.75%-3%.

Experts believe the Fed has gained more confidence that inflation is steadily progressing towards 2%. The agency also indicated it is prepared to adjust its monetary policy stance if risks arise that could hinder the achievement of its goals, noting the dual objectives of price stability and job creation. Fed policymakers forecast that interest rates could be further reduced by 0.5% by the end of this year, by 1% in 2025, and by 0.5% in 2026, bringing the benchmark rate to the 2.75%-3% range. According to the Fed, recent US job growth has slowed but remains positive. Meanwhile, retail sales and industrial production in August exceeded forecasts.

A lively atmosphere at the New York Stock Exchange. Photo: REUTERS

This Fed policy meeting was the last one before American voters went to the polls to elect a president on November 5th. Major US stock indices closed slightly lower, gold prices surged before plummeting, and the US dollar appreciated following the Fed's decision.

Impact on consumers

Experts believe that the Fed's interest rate cut will help alleviate some of the financial pressure consumers have faced over the past two years due to inflation. However, how exactly will this policy interest rate cut impact the US economy and consumers?

According to the Financial Times, lower policy interest rates will help reduce borrowing costs, allowing businesses and families to spend more comfortably, while average wage growth is now outpacing prices as inflation has cooled considerably. The consumer price index has fallen to 2.5% from a peak of over 9% in mid-2022, while the unemployment rate, although recently rising to 4.2%, remains low compared to its long-term average.

However, lowering policy interest rates will negatively impact consumer savings. Banks raised interest rates on savings accounts and high-yield certificates of deposit when the Fed raised the benchmark interest rate. But as soon as there were signs of a Fed rate cut, these banks lowered savings rates and are likely to lower them further after the Fed's latest decision. In the long run, lower interest rates will tend to push the stock market higher as investors accept more risk when yields on safe assets like government bonds fall.

Policymakers say the Fed's interest rate cut won't make much of a difference in the short term. But in the long term, lower borrowing costs will pass on to the housing market, encouraging builders to increase supply and prompting homeowners to consider selling their homes.

Compiled by THANH HANG

Source: https://www.sggp.org.vn/tac-dong-tu-viec-fed-cat-giam-lai-suat-post759822.html