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It has been a year since the Fed changed its interest rate target in any way. In July 2023, the Fed raised rates from 5.25% to 5.50%. The current level is presumably the zenith of the central bank’s historic tightening cycle, which began in reaction to the worst inflation in generations, amid the COVID-19 pandemic.
Lower interest rates are good for consumers. The higher interest rates have, on top of inflation, made things such as buying a car or a home more expensive. They also make it more difficult to pay off credit card debt, so any downward movement in the Fed’s interest rate target would be good news for consumers.
But voters likely won’t feel much from just one rate decrease. The Fed will most likely drop rates by only a quarter of a percentage point when it decides to finally cut. That just makes a dent for consumers. “The cumulative price increases that households have felt over the last several years are not going to be reversed,” McBride said. “So even with interest rates coming down, household budget pressures are going to persist until income can fully catch up and restore the buying power households had a few years ago.”
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