December 18, 2024
When the path is uncertain, you go a little slower … not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.
Fed Chairman Jerome Powell announcing that America’s central bank will cut the federal funds rate by .25%, which will lower some borrowing costs overall. Powell’s reference to being “more cautious” with rate decreases and inflation moving “sideways” spooked investors, causing a sell-off in stocks.
Why It Matters: The Federal Reserve or “central bank” sets monetary policy with the goal of helping to maintain a stable economy. The Federal Reserve sets the federal funds rate, an important borrowing rate which determines the rate that banks lend to each other overnight. This rate impacts other borrowing costs, like home equity lines of credit or credit card rates. When the Fed cuts rates, borrowing costs come down; when the Fed raises rates, borrowing costs go up. This is often used, in part, to try to slow the economy at a time of strong inflation.
After raising rates to combat inflation, the Fed has now cut rates. This latest rate cut is .25%.
Powell cautioned that while he doesn’t foresee the Fed raising rates in the current economic environment, he does want to take a slower approach to dropping rates further in order to contain the risk of higher inflation. This rattled investors who expected more certainty for rate cuts in 2025 to grease the wheels of the U.S. economy, lowering borrowing costs and helping consumers spend more of their money. All the major stock indices tumbled on the news, finishing the day with a massive sell-off.
Powell called the U.S. economy “strong overall” but said that while inflation has “eased” it remains “somewhere elevated.”
Read More: Dow Jones Plummets 1100 Points After Fed Suggests Fewer Rate Cuts In 2025 (Newsweek)
WATCH the press conference HERE (Federal Reserve)
by Jenna Lee, Founder of SmartHER News
