In a move that consumers will welcome, the Federal Reserve on Thursday slashed its benchmark interest rate by a quarter of a percentage point to 4.5-4.75%— marking the second reduction this year.
The Federal Reserve implemented a series of interest rate hikes in 2022 and 2023 to combat high inflation — which peaked at 9% in the middle of 2022. But chairman Jerome Powell hinted that a rate cut was on the horizon after the top measure for inflation showed it fell to 2.4% in September — barely above the Fed's 2% target.
RELATED STORY | What will Fed rate cuts mean for consumers?
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," the Fed said in a statement. "The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."
Lower interest rates will have a ripple effect across the economy, and many consumers can take advantage. For example, mortgage rates could inch lower, prompting more potential buyers to enter the market.
According to Freddie Mac, the current average interest rate on a 30-year mortgage is 6.79% — down from about 7% this time last year. A drop in mortgage rates, however, could cause housing prices to go back up.
RELATED STORY | Trump's return to the White House connected strongly with hopes of US economic improvements
With rates expected to drop further in the coming months, borrowers may soon find themselves in a better financial position. For savers, though, the news isn't quite as rosy.
Higher rates on savings accounts and CDs may start to fall as banks respond to the Fed's move. While some institutions may continue offering competitive yields, overall returns on savings are expected to decline.
