The Fed is already preparing for its first rate hike in four years, with an expected date of September 18, 2024. As of today, the federal funds rate is equivalent to 5.50%, the highest level since 2001, after rising several times at the beginning of 2022 to fight inflation and reaching a terrible peak during the post-epidemic recovery period.
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Expected rate cuts
Market experts expect the Fed to cut rates by either 25 basis points or 50 basis points. A 25 basis point cut seems to be expected, while a 50 basis point cut could indicate deeper economic problems. The Fed will take the rate cut in light of the current strengthening of employers and the trend of inflation falling to 2%. As of August 2024, inflation has fallen below 5%, which has led to speculative expectations of a more dovish Fed action.
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Economic impact
The impact of the rate cut is significant:
- For borrowers: Lower interest rates would increase the cost of borrowing things like mortgages and credit cards, taking some pressure off consumers and potentially boosting spending.
- For investors: Falling interest rates are also expected to improve the performance of the stock market, as lower interest rates may lead to improvements in corporate earnings and personal spending. It is most applicable to related sensitive industries, especially technology and real estate.
- Global impact: The Fed’s interest rate cut has a huge impact on the global market, especially on countries that use currencies related to the US dollar. The US interest rate cut may affect the flow of funds and exchange rates in the global market.
Current Federal Funds Rate
As of September 2024, the federal funds rate is 5.50%. This rate has remained unchanged since it was set at the Fed’s July 2024 meeting. The Fed is expected to announce a rate cut at its upcoming meeting on September 18, 2024, and it is expected to drop to 5.25%.
Historical Trends
The federal funds rate has varied widely over the decades, influenced by inflation, economic growth, and monetary policy decisions. The following table summarizes the average rate and key data points in recent years:
|
Year |
Average yield |
Year Open |
Years old |
Low year |
End of the year |
Annual rate of change |
|
2024 |
5.33% |
5.33% |
5.33% |
5.33% |
5.33% |
0.00% |
|
2023 |
5.03% |
4.33% |
5.33% |
4.33% |
5.33% |
23.09% |
|
2022 |
1.68% |
0.08% |
4.33% |
0.08% |
4.33% |
6085.71% |
|
2021 |
0.08% |
0.09% |
0.10% |
0.05% |
0.07% |
-22.22% |
|
2020 |
0.36% |
1.55% |
1.60% |
0.04% |
0.09% |
-94.19% |
|
2019 |
2.16% |
2.40% |
2.45% |
1.55% |
1.55% |
-35.42% |
Long-term forecast
Future trends expect the federal funds rate to be around 3.0%, which is easily achievable, as many analysts predict it will reach 3.50% by the end of 2025 and 3.25% by 2026.
The next monetary policy meeting of the Federal Reserve will be a very important one, which may mark the beginning of a new round of reforms in the US monetary policy strategy, which is aimed at promoting economic growth while controlling inflation and employment. Investors and economists are closely watching this development and its possible impact on domestic and foreign markets as it has the potential to trigger a major shock to financial markets.
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Source: https://dinhtienhoang.edu.vn
Category: Optical Illusion