The announcement from the Federal Reserve will lower mortgage rates and encourage more building of apartments, which could lower rental costs.
The Federal Reserve on Wednesday announced it was slashing its key interest rate by half a percentage point, potentially boosting the economy and reducing mortgage and housing costs.
The federal funds rate will now drop to about 4.9%, the lowest since March 2023, making it cheaper for consumers to borrow money.
This decision follows a significant cooling of inflation, with the 12-month rate falling to 2.5% in August, the lowest level since February 2021.
“The Committee has gained greater confidence that inflation is moving sustainably toward two percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” stated the Fed.
Federal Reserve Chair Jay Powell noted during a press conference that the labor market and the US economy are in “solid shape.”
How this affects you
The federal funds rate acts as a benchmark for borrowing rates, meaning this cut could impact everyday Americans.
Mortgage rates, reflecting central bank policy, hit a 19-month low on 30-year fixed loans at 6.2% last week. Further rate cuts are expected, likely reducing monthly payments for variable-rate mortgages and lowering borrowing costs for new buyers.
Lower mortgage rates might also encourage homeowners with low locked rates to consider selling.
Chief Economist Kathy Bostjancic stated, “The dynamic between interest rates and home prices is very different in this business cycle post-pandemic.” She added that falling mortgage rates could increase housing supply and potentially decrease home prices in some areas.
Reduced interest rates should enable developers to secure favorable bank loans, making apartment building more affordable amid the current housing shortage.
Economics professor Jack Liebersohn expressed hope that lower rates would lead to a surge in multifamily construction, eventually impacting rents positively.
The Fed’s decision will also lower auto loan costs, which are currently at their highest since 2001.
Other consumer debt costs, including student loans and credit card interest, should also decrease.
Lower Fed rates typically strengthen the job market by making it easier for employers to borrow and cover costs.
The Fed’s decision comes as the latest US jobs report shows slowed hiring, with employers adding 142,000 jobs in August, fewer than expected. Despite revisions, unemployment remains low at 4.2%.
