Will Fed Lower Interest Rates Tomorrow?
Audio version available here (1 min. 55 sec.)
With the United States economy recently faltering, sending many in a panic about a potential recession, the pressure is on the Federal Reserve to lower interest rates. Inflation has steadily dropped towards the Fed’s 2% target, which is what drove the Fed to skyrocket rates to begin with. Combined with consumers and business owners alike feeling the weight of these high interest rates, a drop is all but confirmed for tomorrow.
However, the amount by which the rate will be cut is yet to be seen. Economists and politicians all call for lower rates, but they cannot agree on how much the Fed should slash it by. Many say the Fed will be cautious and stick with a quarter of a point drop. Others, like the former Dallas Fed President Robert Kaplan, say a half point drop is necessary to balance the economy. This would put interest rates below 5%, though this is still quite high compared to the 1.5-1.75% seen before the pandemic hit. Meanwhile, Senator Elizabeth Warren insists in a letter to Fed Chair Jerome Powell that rates should be cut by three-quarters of a point, a move that is typically only seen in periods of economic crisis.
Proponents of extreme rate cuts cite the risk of a recession. Already, the job market has taken a hit, with unemployment reaching 4.2% last month. Senator Warren’s letter warns that the Fed might be “too late” in implementing lower rates. On the other hand, economists warn that plummeting rates could do more harm than good. Nerves about a potential recession are already high; if the Fed drastically cuts rates, it could trigger a mass panic.
So, we know that the Fed will lower interest rates tomorrow, and we have an idea of how much they will go down, but what should you do? Other rates like mortgages and car loans are bound to follow the Fed’s trend, but immediately going out and purchasing a new home or car may not be the best move since rates aren’t going to drop by several points. This doesn’t mean you should abandon the idea, just keep in mind that rates will likely be lower towards the end of 2024 and into 2025.
To find out what the Fed’s move tomorrow is, keep a close eye on the news. Follow the XQ CPA blog for the latest updates, and for personalized accounting and tax services for your business, reach out to XQ CPA’s experienced professionals.
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