Fed’s first rate cut in more than 10 years: What it could mean for your finances

August 1st, 2019

The Federal Reserve on Wednesday lowered its benchmark federal funds rate by a quarter percentage points to around 2.25% from about 2.5%. The last rate decrease was way back in 2008 — the end of a swift sequence of cuts that had lowered the rate from 5.25% in September 2007 to a lower limit of 0%. Those rate cuts were part of the Fed’s aggressive response to an unprecedented global financial crisis that began with the U.S. housing bust in the late 2000s.

Wednesday’s widely expected change in Fed policy has generated great debate about whether a rate cut is merited because of the current state of the economy. Supporting the rate cut are data showing the economy losing momentum in areas such as job creation and manufacturing, inflation below the Fed’s target, and slowing global growth amid trade tensions.

Contradicting the impetus to cut, the economy is in its longest recorded expansion, unemployment is low and there is ample liquidity at low cost in both consumer and commercial credit markets.