On Wednesday, September 18, the Federal Reserve cut the federal funds rate by a half percentage point, or 50 basis points. It's the first rate cut since the 2020 pandemic, and the rate currently ranges between 4.75-5.00%.
Along with mortgage rates dropping last week, banks like American Express and US Bank have lowered APRs on several credit cards. But while these recent effects may entice consumers, the long-term effects are still uncertain.
Outside of the pandemic, the Fed has had six rate-cutting cycles since 1990. On average, the economy has fallen into a recession 18 months after the beginning of the cycle. The unemployment rate has also increased by 1.4% throughout the average of those cycles. However, the results range widely, including in 1995, when it took 69 months for a recession to occur.
The central bank is expected to make a few more interest rate cuts within the next two years which could further lower interest rates for consumers.
“This was an atypical big cut,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “We’re not knocking on recession’s door. This easing and this bit cut is about recalibrating policy for the fact that inflation has slowed so much.”