Fed Meeting Recap: Fed Lowers Rates by 0.5%, Signals More Rate Cuts This Year

Consumers won't feel drastic changes to borrowing rates following today's 50-basis-point rate reduction, but should expect two more rate cuts before the end of the year, according to Jason Walter, a CNET Money expert and certified public accountant with over a decade of experience as a real estate agent. 

Following the Fed's announcement Wednesday, the central bank released its updated Summary of Economic Projections, including its "dot plot," which shows Fed policymakers' predictions for where interest rates could be heading. 

The September dot plot indicates that the federal funds rate will end the year at 4.4%. Walters forecasts a 25-basis-point cut at both of the remaining Fed meetings on Nov. 7 and Dec. 18. 

"Of course, all of this can change based on incoming economic data, but we can all agree that the rate cut today is the first of many to come," said Walter. 

What does all of this mean for borrowers? Loan interest rates and credit card APRs should continue on a downward slope throughout the rest of the year, but it may take months for benefits to really reach consumers.

Jannese Torres, a CNET Money expert and founder of Yo Quiero Dinero, is glad the Fed made a substantial cut. 

"As someone who is in the process of buying a home, this will make the mortgage payment that much more affordable," said Torres. 

Torres believes today's rate reduction will spur potential homebuyers to reenter the market. There also may be more talk of refinancing mortgages for current homeowners who bought a home while interest rates were at peak highs. However, today's rate cut won't mean a significant drop in mortgage rates. It's always a good idea to shop around and compare lenders to make sure you're getting the best rate possible. 

The Federal Reserve's monetary decisions affect the cost of credit, which has a ripple effect on mortgage rates and the broader housing market. Mortgage rates move up and down on a daily basis in response to a range of factors, such as inflation and labor data, as well as supply and demand. 

Today's decision by the Federal Open Market Committee to cut interest rates didn't come as a surprise. Even though the economy is not on the brink of a recession, the Fed opted to reduce interest rate by half a percent, citing concerns about further deterioration in the labor market. 

But experts have told me the size of today's cut didn't matter all that much for the mortgage market. It's what the Fed said about the economic outlook that matters more. 

Fed members now expect to cut rates by an additional 0.5% in 2024, according to the Summary of Economic Projections. The reduction could come in the form of one single half-percentage cut or two quarter-percent cuts (one in November and one in December). 

Prospective homebuyers could see some additional rate relief down the road. But remember that the individual mortgage rate you qualify for is also determined by personal factors, such as your credit score and loan amount.

Read more: How the Federal Reserve Impacts Mortgage Rates in 2024

Aaron Hurd, a CNET Money Expert Review Board member and editor for Cards and Points, said today's rate cut is good news if you're eyeing a new credit card. You may start to see new credit card rewards and benefits in the coming weeks. 

"If credit card-issuing banks believe that this rate cut signals the loosening of monetary policy over the medium term, we will likely see more aggressive marketing of credit cards through welcome bonuses and more generous rewards," he said. 

Credit card rewards and welcome bonuses can help you earn a little extra on your everyday spending. Just make sure you don't overspend to earn points, or else the interest you accrue will likely offset any rewards you earn.  

If you're carrying credit card debt, however, experts say not to focus on earning credit card rewards or bonuses. While today's interest rate cut may lower your APR, it won't save you much money right now. If you're looking for a debt repayment strategy, consider cutting back nonessential spending and a 0% introductory APR credit card.

The Fed cut interest rates today by half a percentage point (or 50 basis points), but it can be difficult to translate that into real-world terms.

Let's first talk about credit card debt. Lower interest rates mean your credit card's annual percentage rate, or APR, will be dropping soon, making the interest charges for your next billing cycle slightly lower. However, it's hard to say by exactly how much your APR will fall because factors other than the federal funds rate impact your card's variable interest rate.

While any decrease in your credit card's interest rate can provide some relief, you shouldn't expect a tremendous change, especially if you're already accumulating interest on an outstanding balance. It's always a good idea to tackle high-interest credit card debt before it spirals, regardless of the Fed's moves. Check out these tips on how to do that.

Read more: What Does the Fed's Interest Rate Cut Mean for Your Credit Card Debt?

Federal Reserve Chair Jerome Powell said that the central bank was confident about making the 50-basis-point cut because "the upside risks to inflation have diminished and the downside risks to employment have increased."

Here's what that means: When the Fed hikes interest rates, it tries to bring inflation down -- but not by too much. The fear is that restrictive Fed policy can lead to a swift and major decrease in economic activity. That can lead to huge jumps in unemployment, putting the job market and US households at risk. That's why the Fed talks about the "balance of risks" when it comes to slowing down the economy. It can't get too hot or too cold.

While Powell acknowledged that unemployment has increased and housing inflation "is kind of dragging a bit," he remained upbeat about the economy today, noting that it's growing at a solid pace and that experts expect it will continue to do so in 2025.

"The US economy is basically fine."

Shang Saavedra, founder of Save My Cents, is "pleased" with the Fed's decision to take the higher of the two rate cut options -- a 50-basis-point cut over 25. 

She thinks the Fed's steeper cut will bring "tangible relief to consumers who are experiencing high interest rates on their loan obligations."

If you have debt with variable interest rates, Saavedra says you may see your interest rate go down. A decrease in how much you pay in interest can give you some relief on your debt payoff, but today's rate cut won't mean a drastic difference in how much you're paying. 

"Half of a percentage point, however, to me is not yet enough to do a complete refinance of any large debts such as mortgages," says Saavedra.

The Fed cut interest rates for the first time since the pandemic today, opting for a more aggressive interest rate cut of 50 basis points (half a percentage point) over a more conservative 25-basis-point cut. Today's move should mark the end of the central bank's long fight against inflationary pressures. Since 2022, the Fed increased the federal funds rate 11 times to bring inflation closer to its 2% annual target rate.

In response to a softening job market, and to hedge against the risk of spiking unemployment, the Fed went with a steeper interest rate cut, as many market experts were pushing for in recent days. 

Though a bigger cut will make borrowing rates less expensive, we won't see the effects immediately. Credit card interest rates will begin to fall with ongoing rate cuts. Mortgage rates have already started to drop as well, though houses won't suddenly become more affordable. On the other hand, we'll also see savings rates start dipping down, with rates on CDs and high-yield savings accounts becoming less attractive to savers.

Read more: Fed Cuts Interest Rates 0.5% to Head Off Risk of Rising Unemployment

Last year, Anna N'Jie-Konte, a certified financial planner, didn't recommend locking in a certificate of deposit, even though many other experts thought rates had peaked. 

"I just don't think that the juice is worth the squeeze right now, given where interest rates are and where they're likely going to be," N'Jie-Konte told CNET in September of 2023. 

Now, with expectations for a Fed rate cut, banks could start dropping long-term CD rates. N'Jie-Konte, the CEO of Poder Wealth Advisors and CNET Money expert, has changed her mind, but with a caveat. She recommends short and intermediate terms (18 months or less), but not long-term CDs. 

"I never want folks to go past 18 months of CDs," N'Jie-Konte says. That's because you're locking money up for a long period of time with the hope that you won't need it. But then what happens if you find more favorable rates while your money is tied up? 

Instead of locking money in a long-term CD, N'Jie-Konte recommends spreading the money across several investing accounts. While they may be more risky, you could get a better long-term return with a 401(k)s and individual retirement accounts, for example. 

If you need to access your money quickly, i.e., for short-term goals and emergency funds, she recommends a high-yield savings account, which can offer solid returns right now. Just keep in mind that those rates are variable instead of fixed, so they are likely to go down with ongoing interest rate cuts over the long term.

There have been plenty of rumblings that once the Federal Reserve cuts interest rates, mortgage rates will drop. However, because mortgage rates are only indirectly tied to the Fed's policy changes, a single cut of 0.5% is unlikely to have a dramatic aftereffect. In fact, the lower mortgage rates we've seen over the last few weeks were due to the market's anticipation of today's rate cut. 

It will take several months (and multiple future cuts) for affordability conditions to gradually improve in the current housing market. Other factors, including how investors react to today's Fed decision and future economic data, will also influence whether home loan rates move up or down -- and by how much.   

Most forecasts expect the average 30-year fixed mortgage rate to move closer to 6% by the year's closing. Though experts largely anticipate a downward trend in rates going into 2025, the mortgage market is never set in stone. Things could get volatile, which is why it's always wise to wait and see.  

Housing affordability is also subjective, so buy a home when you find the rate that works for your personal budget.

Read more: Weekly Mortgage Predictions

Stock market traders and investors are eagerly awaiting the Federal Reserve's rate cut. Stocks have seen little movement today ahead of the Fed's announcement at 2 p.m. ET, with US futures in a holding pattern.

The Fed is expected to cut rates for the first time in four years, which could encourage companies to take advantage of lower borrowing rates to start investing and growing their businesses. But there's still uncertainty about how much easing will take place. 

Wall Street is betting on a 0.5% cut (50 basis points) instead of the originally expected 0.25% cut. The tone shifted this weekend after economists and politicians made the case for a more aggressive cut, with the widely cited CME FedWatch tool showing a higher probability of a steeper cut. 

Since then, some experts have been tamping down expectations, with predictions more evenly split this morning. How will the market respond if the Fed takes the more conservative approach? We'll know soon enough.

Rates for certificates of deposit have held mostly steady for months now, but we've recently seen bigger dips for select term lengths. For instance, last month you could lock in a one-year CD with an APY as high as 5.5%, but now the highest rate is 5% for the same term, based on our daily tracking. In a matter of weeks, the average APY for a one-year CD dropped from 4.66% to 4.55%. 

Even though the Fed doesn't control a bank's decision to raise or lower CD rates, most financial institutions do follow the central bank's lead. Experts say we should expect banks to continue lowering CD rates after today's announcement. 

If you're thinking about stashing your savings in a CD, don't hold off for much longer. The longer you wait, the lower your fixed APY, which means you'll earn less interest over time. 

Read more: Best CD Rates Today, Sept. 18, 2024: The Fed Will Likely Cut Rates Today. CD Rates May Slip Too

Regardless of whether the Federal Reserve reduces rates by a quarter or half a percent, the trajectory of mortgage rates will depend on what comes after the meeting in the press conference with Fed Chair Jerome Powell, says Melissa Cohn, regional vice president of William Raveis Mortgage and member of CNET Money's Expert Review Board. 

"What Powell says about the economy and future rate cuts will be important to the direction of mortgage rates, as the Fed's monetary policy is driven by economic data, just as the bond market is," says Cohn.

Today's rate cut won't lead to direct and immediate financial relief for homebuyers, but we should see further declines in rates if Powell signals that faster and more aggressive rate cuts are in store this year. 

Prospective homebuyers shouldn't focus on timing the market. Though it's great if you're able to take advantage of falling rates, a home purchase shouldn't come at the expense of your financial stability. 

Interest rates refer to how much you're charged to take out a loan or use credit, aka the price you pay to borrow money. Interest rates also refer to the percentage a financial institution pays you (what you earn) for investing your money. If you've ever saved or borrowed money -- including using a credit card -- it's a good idea to understand how interest rates work. 

Whenever the Fed adjusts interest rates, it has a major impact on the broader economy, which has a domino effect on us as consumers. Imagine a situation where the financial institutions and banks make up the orchestra, and the Fed is the conductor, directing the markets and controlling the money supply. In this case, we're all in the audience watching, and we could end up with a little bit less or slightly more money in our pockets.  

That's a simple analogy. But the bottom line is that when the Fed changes how expensive it is to borrow, it affects how we spend and save. When the Fed starts cutting interest rates, banks typically respond by knocking down the rates they offer to savers, but it will also become a bit cheaper to borrow and finance major purchases. Eventually.

Read more: What an Interest Rate Cut Could Mean for Your Money

Fed officials have signaled that rates will be cut today and most experts agree, including Alaina Fingal, CEO of The Organized Money and a CNET Money Expert Review Board member.

The next question revolves around how deep the cut will be -- and what impact that will have on your savings. High-yield savings account rates are variable and can change at any time, but they usually move in the same direction as the Fed, says Fingal. Depending on the bank, you may see your savings rate dip after a reduction in the federal funds rate. 

"Usually, with a 50 basis point cut, it can cause up to 0.25% decrease of the savings rate. So, if the interest rate is 4.25% it could decrease to 4.05%," says Fingal. You may have even already seen a dip in your APY because some banks decrease rates in anticipation of the Fed's next move. But banks will respond in different ways, Fingal says. 

On the flip side, a rate cut means borrowing rates are lower, which could stimulate economic growth, especially if consumers start making big purchases like homes and cars. 

The key thing to remember for both borrowing and saving is that rates won't drop to historical lows overnight. But you also shouldn't have to worry about banks or lenders raising interest rates above current highs. 

Read more: Get Ready for Lower Savings Rates. Here's What Experts Say You Should Do Now

Today's average rate for a 30-year fixed mortgage is 6.24%. That's a decrease of 0.06% from the previous week. 

While mortgage rates fluctuate daily in response to economic data, investor expectations and policy changes from the Federal Reserve, they've been on a fairly consistent downward trend since early August. 

The Fed is expected to cut interest rates by 0.25% or 0.5% today, and prospective homebuyers -- as well as homeowners looking to refinance -- can expect rates to continue falling over the long term. 

But the federal funds rate isn't directly tied to mortgage rates. Reducing the Fed's benchmark interest rate by 0.25% or 0.5% won't translate to the same reduction in home loan rates. Also, mortgage rates are often quick to rise but slow to fall, so it's likely to take some time for rates to ease more considerably for buyers.

We'll be keeping an eye on what Fed Chair Jerome Powell says in his postmeeting remarks as well as what changes are made to the Summary of Economic Projections. If Powell signals that additional (and larger) rate cuts are needed to stave off a recession, mortgage rates could drop further.

Read more: Today's Mortgage Rates for Sept. 18, 2024

Today's Federal Reserve interest rate cut should mark a turning point for the housing market, which has been suffering from rising mortgage rates. As the Fed starts consistently reducing rates over the coming year, mortgage rates are likely to fall. But will lower interest rates make homebuying accessible to middle- and low-income families? 

A recent CNET survey found that 40% of US adults are pessimistic about mortgage rates becoming affordable before the end of the year. Even as rates decline, buyers face an array of financial obstacles, both inside the housing market and in the broader economy. For example, they'll still have to deal with high home prices and limited inventory. That's on top of lingering inflation pressures, debt and limited wage growth. 

The average 30-year fixed mortgage rate is expected to close the year at 6%. Our survey found that just 4% of US adults would realistically consider buying or refinancing at a 6% mortgage rate, so it's unlikely there will be a meaningful uptick in homebuying or refinancing just yet.

Read more: Mortgage Rates Are Falling, but Won't Get Low Enough for Most Americans, CNET Survey Finds

After nearly a year of speculation, the Federal Open Market Committee is expected to cut rates at its meeting today. The size of the cut, however, is still up in the air. 

Most experts I talked to yesterday predicted a rate cut of 0.25% (25 basis points), but others are betting on a half-percent cut, as evident by the widely cited CME FedWatch. Either way, we won't see significant changes after just one rate reduction. 

The good news is that we're likely to see additional interest rate cuts through the rest of 2024 and into 2025. That should provide some relief on borrowing costs, whether it's taking out a mortgage or paying down high-interest credit card debt.

To curb soaring inflation, the Fed hiked the federal funds rate multiple times over the last couple of years to its current target range of 5.25% to 5.5%. High interest rates have made it more expensive to borrow money and take on debt, causing consumers and businesses to pull back on spending and temper demand. 

Higher interest rates can also slow hiring and job growth. Recent labor reports showed unemployment rising this summer. Some experts think a deeper rate cut could help avoid a major economic slowdown. 

We'll keep you up to date on the latest news throughout the day, including the Fed's announcement at 2 p.m. ET (11 a.m. PT) and Fed Chair Jerome Powell's press conference half an hour later.