Here's When the Fed Will Cut Interest Rates, According to Experts
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Everyone has been following the Federal Reserve’s moves for the past two years, wondering what the central bank will do next with interest rates. While it now looks like the long stretch of rate hikes is finished or close to it, the new question is: When will the Fed begin to cut interest rates?
The central bank has the liberty to change the federal funds rate at will. That’s the interest rate at which banks can borrow or lend to one another overnight. Raising this rate allows the Fed to shrink the amount of money available and make it more expensive to borrow. It can essentially wield this rate to slow down or speed up the economy like a pressure valve.
In 2020, for example, the Fed lowered this rate to 0% to encourage spending and stimulate the economy after the pandemic slowdown. In March 2022, with inflation rising to almost 9%, it began to hike interest rates to make it more pricey to borrow, with the hopes of cooling the economy and slowing down runaway price increases on a wide range of goods and services.
The inflation rate is now around 3%, close to the Fed’s target rate of 2%, but interest rates remain high. Rate cuts are expected, but there is little consensus about exactly when they'll come. In real estate, the rate cuts would translate to lower mortgage rates for homebuyers and more incentive for owners to sell, thereby boosting the inventory of homes on the market. More broadly, businesses would find it cheaper to borrow too, allowing them to increase their spending and ultimately leading the price of stocks upward.
