What's next for US interest rates?

For the first time since early 2020, the Federal Reserve slashed rates at its September meeting. Now, the central bank’s benchmark interest rate sits a half point lower, at between 4.75% and 5%. Previously, rates had remained at a high of between 5.25% and 5.50% since July 2023.

This rate cut “is one of the most heavily anticipated of the year,” said The Washington Post. After holding off for a long time as it monitored inflation and other economic indicators, the Fed’s “more aggressive approach” suggests “officials are proactively trying to ease pressure off the economy and keep the job market from slowing any further.”

The rate cut the Federal Reserve announced at its meeting in September could be the first in a series of rate cuts to come. In the Summary of Economic Projections, also known as the dot plot, released after the September meeting, Fed officials “projected another half point of rate cuts later this year, which would lower the central bank’s policy rate to 4.4%,” said The New York Times. “And by the end of 2025, they expect rates to be down to 3.4%.”

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week’s Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Federal Reserve Chair Jerome Powell spoke about the Fed’s move toward rate cuts, and its start with a more aggressive cut than some expected, in a press conference following the meeting. “Our patient approach over the past year has paid dividends,” he said, per The New York Times, but now “the upside risks to inflation have diminished, and the downside risks to unemployment have increased.”

Rate changes usually take “at least 12 months” to have “widespread economic impact,” Investopedia said. But the stock market reacts immediately. For example, when Powell signaled last year that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, “Treasury yields rose and the dollar extended again after Powell’s comments,” said Reuters.