The Federal Reserve announced on Wednesday that it would cut its target range for the federal funds rate by 0.50 percentage point, a move that could boost economic growth and ultimately boost Vice President Kamala Harris' chances of being elected.
The Fed's decision came after inflation fell to 2.5% last month and job growth in July and August fell short of economists' expectations. The rate cut was the first change in Fed policy since July 2023, after the Federal Open Market Committee had kept interest rates on hold at 5.25% and 5.50%, both 23-year highs, for eight consecutive sessions. (Related: Experts say one of Kamala Harris' tax proposals could be an 'economic doom machine')
“Taking into account developing inflation trends and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 0.5 percentage point to 4-3/4 to 5 percent,” the FOMC said. Written “In considering further adjustments to the target range for the federal funds rate, the Committee will carefully assess available data, evolving expectations, and the balance of risks,” the statement said.
Lower interest rates could lower borrowing costs, freeing up capital for both businesses and consumers and boosting gross domestic product (GDP). Hopes of higher GDP could also boost the stock market, as happened when the Fed signaled interest rate cuts in December 2023. reduce This year's interest rate is Boost If economic conditions improve to a certain extent, Harris' chances of winning the presidential election will increase.
The strong performance of the S&P 500 Index in the three months leading up to Election Day As a result Since 1928, the party in power has won 83% of the time, and more than 80% of registered voters have voted in favor of the say Who is elected in 2024 will be heavily influenced by the economy.
WASHINGTON, DC – JUNE 12: Federal Reserve Chairman Jerome Powell (Photo: Kevin Dietsch/Getty Images)
The rate cut was in line with expectations, with 59% of interest rate traders expecting a 0.50% cut on Wednesday before the announcement, while the remaining 41% expected a 0.25% cut. According to to CME Group's FedWatch tool.
The cuts follow an announcement of a downward revision of more than 800,000 jobs for the period April 2023 to March 2024, with EJ Antoni, a research fellow at the Heritage Foundation's Grover M. Herman Federal Budget Center, previously telling DCNF that the situation is “very similar to the start of the Great Recession,” when a rapid deterioration in economic conditions made it difficult for the Bureau of Labor Statistics to monitor employment data and forced frequent revisions.
Lower credit costs could also lead to increased employment as businesses have access to more capital, and could mitigate the recent trend of a sharp increase in credit card and auto loan defaults. The United States is currently experiencing the highest credit card delinquency rates in more than a decade, with nearly 10% of credit card balances being delinquent in the past year. According to To the Federal Reserve Bank of New York (FRBNY).
Total household debt rose by $109 billion in the second quarter of 2024 to $17.8 trillion, according to the New York Fed.
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