25 Basis Points: What the Latest Federal Reserve Rate Cut Means for You

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The Federal Reserve recently cut its key interest rate by 25 basis points (0.25%) to a range of 4.5% to 4.75%.

This decision, made just after Donald Trump's election win, marks the second rate cut in just seven weeks, following a larger half-percentage point reduction in September. But what does this mean for you, your savings, and your loans?

Why the Fed Cut Rates Again

The Fed cut rates to stimulate the economy by making borrowing cheaper. Lower interest rates encourage consumers and businesses to spend and invest, which helps support economic growth. The move is designed to stabilise prices and boost employment.

However, the Fed became more cautious in its recent statement, removing language that suggested it was confident inflation was on track to hit its 2% target. This leaves some uncertainty about future rate cuts.

Mixed Economic Data: Inflation and Job Growth

Despite the rate cut, recent economic data presents a mixed picture. The Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, showed some improvement with a 2.1% increase in September, bringing inflation closer to the target. However, when food and energy costs are excluded (the "core" PCE), inflation remained at 2.7%, signaling that price pressures are still a concern.

The job market also showed some weaknesses. The U.S. added only 12,000 jobs in October, partly due to the impact of hurricanes and a strike at Boeing. While this number is low, it’s unclear whether it represents a broader slowdown in job creation. Some economists are concerned about the potential longer-term effects on the labor market.

Trump’s Impact: Uncertainty Ahead

The recent presidential election adds an extra layer of uncertainty.

President-elect Trump has previously been critical of the Fed’s decisions, and his proposed policies—like imposing tariffs or cutting taxes—could lead to inflationary pressures, which may complicate the Fed’s task of controlling prices.

Although Powell emphasised that the Fed will continue to make decisions based on economic data and not political pressure, market watchers are keen to see how Trump’s administration might influence future monetary policy.

What Does This Mean for You?

For consumers, this rate cut can be a mixed blessing. On the positive side, lower mortgage and loan rates mean it’s cheaper to borrow money for big purchases or investments. However, savings accounts and CDs may offer lower returns as interest rates fall. The stock market also reacted positively to the rate cut, with tech stocks like Nvidia and Amazon reaching record highs as investors looked to capitalise on the continued low-rate environment.

In the end, while the Fed’s actions are aimed at supporting the economy, the path forward is uncertain. The next steps will depend on how inflation, job growth, and other key indicators evolve in the coming months.

As the Federal Reserve makes decisions to guide the economy, another revolution is quietly unfolding in the world of technology: artificial intelligence (AI).

While the Fed’s rate cuts are aimed at stabilising the economy, AI is rapidly transforming industries, reshaping everything from how businesses operate to how we live and work.

That’s where The Rundown AI steps in.

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