Fed cuts rates by quarter point, split on further reductions

The Federal Reserve cut interest rates for the second time this year in an attempt to cushion the U.S. economy from trade tensions, slowing global growth and low inflation.

The U.S. central bank voted Wednesday to reduce its benchmark interest rate by 0.25 percent, or 25 basis points. That’s the second straight reduction, after the Fed lowered borrowing costs by the same amount on July 31. It’s also the first time since before the Great Recession that the Fed lowered rates at back-to-back meetings.

The move brought the federal funds rate down to a target range of 1.75 percent and 2 percent, where it was in September 2018.

“Sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain,” the Federal Open Market Committee (FOMC) said in its post-meeting statement, released at 2 p.m. in Washington.

Fed officials “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” according to the statement. Officials said the job market is “strong,” with “solid” job gains.

For savers, the rate reduction means interest rates are likely to fall on savings accounts and certificates of deposit (CDs), if they haven’t already. Consider locking in your rate on a CD now. Borrowers, however, should take advantage of the opportunity by prioritizing paying off high-cost debt, such as credit cards. The reduction will likely push interest rates on loans even further, including auto loans, variable-rate mortgages and home equity lines of credit (HELOCs).

Still, the reduction is a modest move, says Greg McBride, CFA, Bankrate’s chief financial analyst.

“The latest rate cut means the Federal Reserve has unwound just two of the nine rate hikes made between 2015 and 2018,” says McBride. “Not only is a quarter-point move largely inconsequential to household budgets, but credit card and home equity rates are still notably higher than they were just a couple of years ago.”

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