The Fed Decision DayAs expected, the FOMC chose to cut its key overnight borrowing rate (fed funds rate) by a half percentage point, or 50 basis points, at the conclusion of its two-day policy meeting on Wednesday. This move shifts the federal-funds rate to a range between 4.75% and 5% and was the first U.S. interest rate cut since early 2020 (but is part of a growing global rate-cutting trend.) The Fed Funds Rate for the Past 10 Years
Long-term borrowing rates, like mortgages, have been declining in anticipation of yesterday’s rate cuts with U.S. 30-year mortgage rates recently hitting a two-year low of 6.15%. The Fed suggested its rate cut was partially aimed at preventing the cooling labor market from deteriorating further as the unemployment rate recently rose to 4.2% The Dow Jones Industrial Average (DIA) and the S&P 500 (SPY) initially reacted to the rate cut by rallying to fresh record levels but ultimately closed lower in the wake of the announcement. Both indices rose over 1% the following market day. The Fed Revised Its Economic ProjectionsThe Fed also released its updated “dot plot” in its newly released Summary of Economic Projections. The latest projections show the Fed expects a median interest rate of 4.4% by the end of 2024 and a median interest rate of 3.4% by the end of 2025. You can see the latest dot plot below. |