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The Federal Reserve has officially voted to lower interest rates by a half-percentage point. Marking the first reduction since the central bank launched its fight against inflation in 2020, this is a signal that the aggressive approach to bringing inflation rates down toward the 2% goal has been successful. Additionally, the hope is that lowering interest rates will help the economy continue to grow.
Eleven of the 12 Fed voters were in favor of the interest rate cut to bring the benchmark federal funds rate to a range between 4.75% and 5%. Additionally, quarterly projections showed that the majority of officials were in favor of lowering rates by at least a quarter-point at the next meetings in November and December.
The decision to cut rates by an amount that is much larger than what was originally predicted signals that the central bank is aiming to prevent past rate increases from weakening the U.S. labor market. Rate cuts were never doubted by analysts; however, the size of the cut was surprising to most. One economist in an article from the Wall Street Journal suggested that this size cut signals that the Fed might be worried about the labor market.
In the same WSJ article, Fed chair Jerome Powell discussed some of the logic behind the decision.
“We are committed to maintaining our economy’s strength,” Powell said. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained.”
This push for the larger cut was likely a means of risk management where officials have weighed the risks of economic hazards, such as high inflation or rising joblessness, prior to making a final decision. In the past, the Fed has been criticized for waiting too long to start raising rates, so it more than likely doesn’t want to be criticized again for being too late to cut rates.
“You can take this as a sign of our commitment not to get behind,” Powell said.
This decrease is expected to provide immediate relief to consumers with credit card balances and to small businesses with variable-rate debt. However, some consumers may still be looking for ways to ease their financial burden, and bankruptcy might be an option. The attorneys at Sader Law Firm are available to answer all questions and figure out your best course of action. Contact Sader Law Firm at (816) 561-1818 for a free phone consultation and learn more about how bankruptcy might be the right move for you.
