Key Takeaways from the Fed’s Decision to Deliver a Jumbo-Sized Interest Rate Cut

The recent decision by the Federal Reserve to slash interest rates by half a point is a landmark moment, as it marks the first rate cut since March 2020. This move is designed to reduce borrowing costs across mortgages, credit cards, and other financial products. Here are the key takeaways:

First Cut Since 2020: The Fed’s action is significant as it ends the period of high-interest rates that had persisted for over a year to combat inflation.
Lower Borrowing Costs: The immediate effect will be felt by consumers, who will benefit from cheaper loans, particularly for mortgages and credit cards, helping spur economic activity.
Inflation Fight Milestone: This rate cut signals the Fed's success in addressing inflation pressures that had kept interest rates high for a prolonged period.
Urgency for Relief: The aggressive rate cut reflects the Fed's urgency in providing swift economic relief, likely in response to increasing demands for a bold approach.
Unanimity Not Achieved: Fed Governor Michelle Bowman dissented, preferring a smaller quarter-point cut, showing some division within the central bank.
Stock Market Reaction: Markets showed mixed responses, with stocks fluctuating after the announcement.

Fed Chair Jerome Powell reaffirmed the decision as a proactive measure, stating that the half-point cut demonstrates the Fed’s commitment to staying ahead of economic challenges.

Fed officials have signaled more rate cuts by the end of the year in their latest economic forecasts, a notable shift from the single cut they projected back in June. In addition, central bankers expect the unemployment rate to rise to 4.4% by the end of the year, up from the current 4.2% in August.

Despite the aggressive rate cut on Wednesday, the Fed’s inflation fight appears to be yielding results. Inflation has significantly dropped from the 40-year highs seen during the summer of 2022, and remarkably, this progress has been achieved without triggering a recession. While the higher interest rates have played a key role, the gradual recovery of the U.S. economy from pandemic-related disruptions has also contributed to this momentous improvement.

The Federal Reserve has carefully navigated the challenge of controlling inflation without severely impacting the U.S. job market—a notoriously difficult task. Rate hikes typically work by slowing economic activity, often likened to using a sledgehammer rather than a scalpel.

Although inflation has eased, concerns now revolve around the future of the job market rather than inflation itself. Some have urged the Fed to adopt more aggressive rate cuts to address these concerns. The unemployment rate has risen steadily over the past year, though from historically low levels. Economists caution that once unemployment starts rising, it often continues upward, potentially jeopardizing economic stability.

This situation threatens the possibility of a soft landing for the U.S. economy—a rare outcome where inflation is controlled without a significant rise in unemployment. Such a scenario has only been achieved once in recent history, during the mid-1990s, putting the Fed on the cusp of a potential historic achievement.

Today’s Average Mortgage Rates

30-Year Fixed-Rate Mortgage:
- Today: The average APR for a 30-year fixed mortgage is 6.63%.
- Last Week: 6.61%.
15-Year Fixed-Rate Mortgage:
- Today: The average APR for a 15-year fixed mortgage remains at 5.72%.
- Last Week: 5.72%.
30-Year Fixed-Rate Jumbo Mortgage: