Here’s What Will Happen When the Fed (Eventually) Cuts Interest Rates
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While the Federal Reserve kept interest rates unchanged Wednesday, there’s a tone shift happening and a chance that the first rate cut in four years could be announced in March.
Officials on the rate-setting Federal Open Market Committee (FOMC) removed a piece of language from their meeting statement about the possibility of higher rates, which is a significant step as the Fed shifts its posture on future rate actions.
Still, the committee says it does not expect to cut rates "until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
The first rate cut will be a huge deal. Just about every corner of the economy was affected as the Fed raised benchmark interest rates from around zero in early 2022 to 5.25% to 5.50%, the level it's been since July 2023. Inflation came down — which was the main reason the Fed raised rates to begin with — while borrowing costs soared, the housing market slowed, and bond yields increased.
If and when rates are finally cut, many of the trends of the past two years will start to reverse. To an extent, that’s already happening — just in anticipation of rate cuts.