Fed Rate Cut: A Look Ahead to 2024, How Low Will Rates Go?

The Federal Reserve’s Anticipated Interest Rate Cut: How Big Will It Be?

The Federal Reserve is widely expected to bring about a long-awaited interest rate cut during its next meeting. But just how big will that potential rate cut be?

The Fed’s Interest Rate Decision

The central bank held interest rates steady in July — a move that was expected and kept rates at the 5.25% to 5.5% range. But Fed Chair Jerome Powell said at the time that the first rate cut since the early days of the COVID-19 pandemic could be coming as soon as the next Federal Open Market Committee (FOMC) meeting Sept. 17-18.

Risks of a Delayed Rate Cut

It could be too little, too late, according to some experts. After a disappointing July jobs report, some economists expressed doubts that the U.S. could avoid a recession at this point, and the market sell-off last week showed investors are worried about a slowing economy as well.

Size of the Potential Rate Cut

When the Fed does move rates, they usually choose to do so in 25 basis-point increments. But it has been known to make larger decreases, like when it cut rates by half a percentage point and then a full percentage point in March 2020, and recent events have spurred many onlookers to consider the possibility of a more dramatic cut again in coming months.

What Will the Fed Do About Interest Rates in September?

While the market has already bounced back, the tumble last week sparked speculation that the Fed could implement an emergency interest rate cut. Jeremey Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School, even told CNBC that the central bank should make an emergency 75 basis-point cut and “another 75 basis-point cut indicated for next month at the September meeting — and that’s minimum.”

Risks of an Emergency Rate Cut

Making a rate cut between FOMC meetings would be highly unusual for the Fed.

Predictions for the Future of Interest Rates

The FOMC will meet two more times after September — in November and December — and next month’s likely rate cuts are expected to be the first of several.

What Interest Rate Cuts Mean for Consumers

The federal funds rate — which is the benchmark interest rate figure that the Fed makes decisions about at its FOMC meeting — determines the rate at which banks lend money to one another overnight. A trickle-down effect means that changes to the federal funds rate can influence how expensive it is to borrow money for consumers, and how much interest you can earn in savings accounts.

Borrowing and Savings: How Rate Cuts Affect Consumers

Generally, when interest rates get cut, mortgage rates come down as well. Rates could also drop for auto loans, personal loans and student loans, depending on the type of loan. And of course, when rates fall, you may have the chance to lower your monthly payments by refinancing mortgages and other loans.

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