America's Talking - Fed Announces Cut to Federal Interest Rate, Driving Stocks Up

Episode Date: September 21, 2024

The U.S. Federal Reserve Board on Wednesday announced a slight cut to the federal funds rate, the first cut since March of 2020, when rates were near 0%. Federal Reserve Chair Jerome Powell pointed to good data on the job market like unemployment, labor force participation and fewer job vacancies. The Fed announced a cut of 50 basis points, or half a percentage point, as economists and the market closely watched the news, making the new federal funds range 4.75-5%.Support this podcast: https://secure.anedot.com/franklin-news-foundation/ce052532-b1e4-41c4-945c-d7ce2f52c38a?source_code=xxxxxxFull story: https://www.thecentersquare.com/national/article_4676be98-75e9-11ef-a236-67ec204202ad.html Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello and welcome to America in Focus, powered by the Center Square. I'm Dan McAulb, Chief Content Officer at Franklin News Foundation, publisher of the Center Square Newswire Service. We are recording this on Friday, September 20th. The Federal Reserve this week announced the first rate cut to the federal fund's interest rates of 50 basis points, the first cut in more than four years. Joining me to discuss this is Casey Harper, Washington, D.C. Bureau Chief for the Center Square. Casey, tell our listeners what happened this week and what it means for them.

Yeah, I mean, this is the biggest economic story in a wild, Dan. It sounds technical, what are bases points? But it's very important. It's huge for housing. It's huge for inflation, the economy, and even the election. So the U.S. Federal Reserve controls the federal funds rate, which is their way of manipulating interest rates to either accelerate the economy or get inflation down. Those two goals, those two actions kind of run contrary to each other. So when they raise interest rates, it slows down inflation, but it can hurt the economy, hurt the job market in particular.

And when they lower interest rates, it could stimulate the economy, but it actually leads to higher inflation. So, of course, we've had runaway spending and a huge spike in inflation. It began near the end of the Trump administration, but really took off under the Biden administration, especially as during the pandemic, there's several trillion dollars in, you know, a federal spending. Much of it was deficit spending. It's not paid for adding to the debt. The national debt is now over $34 trillion in deficits.

You know, deficits before the pandemic never topped one. trillion dollars, but now they're regularly one or two trillion dollars, which is, you know, we can talk about the debt more if we want, but it's not a good sign for the future outlook. And debt as a share of GDP is growing as well. So you've got this environment coming into this week where debt is huge. The deficits aren't in a bad place. Congress is spending at a rapid, rapid rate in the last, you know, four years. and inflation has spiked.

I mean, we saw inflation go up to like 9% earlier in Biden's term, but now inflation is slowed. It's down to around 3%. Now, of course, that doesn't mean the prices went down. Prices are still much higher than they were when Biden took office, and that's a important note. I mean, it's not like your eggs are going to get cheaper when you go to the grocery store. They're still much more expensive, but the rate at which they're getting more expensive is more normal now. All right. And so because of that, the Federal Reserve felt that it was okay to start cutting interest rates. So they cut by half a percentage point, which was seen by experts as an aggressive rate cut. It sends a message to investors to the market that the Federal Reserve feels the economy is doing well, that the labor market needs a little bit of help. But that they feel inflation, maybe it's not totally solved, but it's going to be fine or fine enough to cut this rate. So it's really a good economic indicator. And really, probably no one is rejoicing more than Kamala Harris,

who is running on this economic record right now. Right. So what does it mean for real, in real word terms, for families, etc? So if you're, if you're looking to buy your first home or you're looking to, you know, upgrade because you're starting a family or you're close to retirement and you're looking to downgrade, your children have left, whatever it is, you know, you're looking for a home. it should mean lower interest rates on that mortgage. If you're going to buy a car, a new car for the family, should mean lower interest rates for borrowing money on that car.

If you have significant credit card debt, interest on that credit card debt could come down. Yeah, I mean, so this individual rate cut will probably not impact those things because it's already was expected. And so it's already kind of been baked into the market. However, it seems my read on it is there's going to be more rate cuts, Dan, and that even, you know, we've seen predictions that the interest rates will get down to 3% by this time next year.

And if that happens, yes, then I think it will happen. Yes, you're going to see a decrease in, you know, for instance, mortgage rates. It's going to be much cheaper to get a loan to buy a house. I think that impacts so many people. We don't have friends. I'm sure you know people who they wanted to buy house, but man, these interest rates, the house that they could have afforded two years ago, they can't now because they can't afford the interest rate. So I think we can, I can tentatively project that we are going to see those come down over the next year to a more reasonable place, a better place for buyers to be able to afford more. And you mentioned that it, it, Kamala Harris, the, vice president Kamala Harris, the Democratic nominee for president, that she would probably celebrating it.

Do you think this actually could have an impact on the election? I definitely think it can because it's seen, you know, Federal Reserve Chairman Jerome Powell and President Joe Biden both said, you know, they use the language of this is not a victory lap, quote, unquote, victory lap. But a lot of people are taking it that way. The market soared it very well after this news came out. It's a sign that it's just a sign that over the next year, the economy's going to get probably get better unless something crazy happens. Like another major event that really destabilizes things because you expect these interest rates to keep going down, which means the economy is just going to keep getting this boost.

And the market is going to perceive this as good, which means the market is probably going to do well, unless something interrupts that. And I think it just makes it harder for Trump to make that argument that, you know, that Biden Harris ruined the economy because, of course, think if we were at the place we were, you know, a couple years ago, Dan, where inflation was 9% and we were having a lot of economic issues and supply chain. I mean, I think Trump would win in the landslide because he could put this at the feet of Harris. But now they've mostly, they haven't totally solved the problem, but it's on such a good trajectory right now that it's a much harder to make that argument. And, you know, poll after poll shows,

that voters trust Republicans more on the economy. And polls do show they trust Trump more than Harris on the economy as well. And so anytime that the economy is bad, it serves Republicans well in an election as long as they're not the incumbent because they can say an argument that's intuitive to people, which is, hey, we got to get these Democrats out of here, get a Republican in there to fix the economy. And voters kind of believe that that is a legitimate argument. But the better the economy is, the less, it's a major issue in the election. And so the election could be about abortion or democracy, which is what Democrats wanted to be about where Trump wants it to be about immigration and economy.

I'm going to push back just a little bit, Anya Casey there. I mean, when people go to the grocery store, buy food for their families, for dinner, etc., they're still paying those elevated prices. I think that is still on the back of voters' minds, but we are out of time. Thank you for joining us today, Casey. Listeners can keep up with this story and more at thecentersquare.com.