Federal Reserve Cuts Interest Rates To Lowest Level In Three Years
The Federal Reserve cut its benchmark interest rate for a second straight meeting, but Chairman Jerome Powell warned another rate cut in December is not certain — especially because the government shutdown means that key economic reports are not being released.
Powell said there are “strongly differing views” on what to do at the central bank’s next meeting. This time around, the Fed lowered interest rates by a quarter point, which brought rates below 4% for the first time in three years.
The 10-2 vote split policymakers: one wanted an even bigger cut, another preferred to hold steady.
What that means? In general, lower interest rates make it less expensive for people and businesses to borrow money. Fed rate changes can affect credit card debt in the short term, while over time they can influence mortgage rates, car loans, and some types of student debt — though fixed-rate loans are less directly affected.
Missing part of the picture: The government shutdown, in its fifth week, has halted the publication and collection of key economic data that the Fed uses to decide rates. The Bureau of Labor Statistics did not release September’s jobs report and hasn’t collected any data in October.
“What do you do if you are driving in the fog? You slow down,” Powell said in response to a question about how the shutdown could impact a December cut.
WALL STREET VS MAIN STREET
Wall Street finished a bit lower on Wednesday, after Powell cast doubt on another rate cut. Still the U.S. stock market has been hitting all-time highs, driven by the AI boom. Nvidia, which makes AI chips, fell slightly on Wednesday after it became the world’s first company worth $5 trillion.
Main Street, however, isn’t doing as well — as major companies announce large-scale layoffs.
By the numbers: Amazon plans to lay off as many as 30,000 workers — it’s largest cut ever, UPS cut 48,000 this year, Target plans to eliminate 1,800 corporate roles, and Paramount-Skydance plans to slash about 2,000 jobs.
Even perceived winners in the AI-fueled economy — like Meta, the parent company of Facebook and Instagram — have recently announced layoffs, including in its AI division.
And even for people with jobs, the picture isn’t great. The JPMorgan Chase Institute reports income growth has slowed to near-decade lows, showing a softening labor market. And young people are getting hit the hardest.
Why that matters: Your 20s are typically when income grows the fastest, with workers hopping from job to job as they establish their careers, usually getting nice pay increases along the way. But with fewer opportunities, many are staying put longer — slowing their earnings growth.