The wait for a cut in interest rates is over.
The Federal Open Market Committee Wednesday announced a half-point percentage cut, the first rate cut since 2020. The new target rate is 4.75 to 5 percent.
“The Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by 1/2 percentage point,” said Federal Reserve Chairman Jerome Powell. “This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 percent.”
The cut in rates followed the Federal Reserve holding rates for nine straight meetings since mid-2023. The Federal Reserve raised rates by 525 basis points from early 2022 through last summer in an effort to bring down inflation.
The consumer price index released by the Bureau of Labor Statistics showed an annual inflation rate of 2.5 percent at the end of July. Powell pointed out the rate was even lower in August.
The labor market has also softened in the past year. Unemployment was at 4.2 percent in August. The economy added only 142,000 jobs, nearly 60,000 below the monthly average from the previous 12 months.
“The labor market has cooled from its formerly overheated state. Inflation has eased substantially from a peak of 7 percent to an estimated 2.2 percent as of August,” Powell said. “We are committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal.”
The FOMC expects this to be the first of several cuts. Committee members predicted rates to be at 4.4 percent at the end of the year and down to 3.4 percent by the end of 2025.
The federal rate cuts are good news to the auto industry and consumers. According to Cox Automotive data, used vehicle average rates were at 13.91 percent in September. New rates were at 9.61 percent.
