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Fed cuts interest rates for first time in 4 years – here’s what that means for your wallet

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The Fed interest rate cut will mean better borrowing rates for borrowers. (iStock)

The Federal Reserve cut the federal funds rate by half a percentage point Wednesday, a move that was largely anticipated by economists as inflation continues to inch sustainably toward a 2% target rate.   

The central bank announced it would lower the federal funds rate by 50 basis points to a range of 4.75% to 5%, as it turns its attention to rising unemployment. The August jobs report showed a net gain of 142,000 jobs and unemployment at 4.2%. The central bank predicted the unemployment rate will increase to 4.4% and stay there. Federal Reserve Chair Jerome Powell said at a press conference on Wednesday that the U.S. labor market is solid, and the rate cut is intended to maintain its strength.  

Inflation rose 2.5% in August, the smallest 12-month increase since February 2021. Core inflation, which excludes more volatile food and energy prices, rose 3.2% and increased 0.3% monthly in August. 

“The FOMC projections highlighted that inflation is returning to target more quickly than the Committee had expected in June and that the unemployment rate has moved higher and is likely to stay higher than expected,” said Mike Fratantoni, the Mortgage Bankers Association Senior Vice President and Chief Economist. “While not likely to be in a recession, the U.S. economy is likely in for a period of slower economic growth.”

The Fed is expected to continue cutting rates this year and indicated that if the economy evolves as expected, the federal funds rate could be dialed back to 4.4% at the end of this year and 3.4% by the end of 2025.

“We are now at the beginning of the Fed lowering rates,” Voxtur CEO Ryan Marshall said. “We know that the Fed will continue to cut rates throughout the year to keep the economy as strong as possible, but how far are they willing to go? We think they will keep cutting until rates are hovering at 5% unless there is a strong economic event, like a major uptick in unemployment. In which case, the Fed will get even more aggressive in cutting rates.”

If you’re worried about the state of the economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.

BEST PERSONAL LOANS OF AUGUST 2024

Mortgage market already priced in cuts

For mortgages, that rate cut isn’t likely to create much change since this anticipated cut has already been baked into borrowing rates, which have dropped to close to 6% in recent weeks, according to Freddie Mac. However, with the Fed’s indication that more rate cuts could follow, mortgage rates could continue to trend downward. 

The lower mortgage rate environment has spurred increased refinances and some additional purchase activity in recent weeks. Roughly four million homes have a refinance opportunity, with rates falling closer to 6% and there are more in the pipeline as the Fed starts the easing cycle, according to CoreLogic Chief Economist Selma Hepp. 

“It’s important to note that lower rates have been a hot topic for a while, and potential homebuyers have been on the sidelines in anticipation of lower rates and improved affordability,” Hepp said. “With rates coming down over the last four weeks, CoreLogic data revealed that pending home sales have finally started to show consistent improvement over last year’s activity.”

But high borrowing rates aren’t the only challenge buyers face; the housing market is also plagued by low inventory, which has helped keep prices elevated even as demand for housing is down.   

“The Fed is looking to stimulate housing while the economy is still somewhat in a good spot in terms of inflation and consumer confidence,” Percy.AI Founder and CEO Charles Williams said. “They will need to lower rates more to create a mini-refinance boom, and builders are now constructing more starter homes. So, with additional rate cuts coming later this year, 2025 will see a housing market rebound in both existing and new home sales.”

If you want to become a homeowner, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options from multiple lenders at once.

GROW YOUR MONEY FASTER: 5 ALTERNATIVES TO A SAVINGS ACCOUNT

Consumer wallets catch a break

The rate reduction brings much-needed relief to consumers who have increasingly relied on credit products. According to a recent TransUnion report, bank card balances increased 4.4% on an annual basis in the second quarter of 2024.

The reduction in interest rates would give borrowers options and could also spur banks to extend credit lending to a larger segment of the consumer population, according to Michele Raneri, TransUnion vice president and head of U.S. research and consulting.  

“Today’s reduction in interest rates could ultimately allow for consumers to see lower monthly payments,” Raneri said. “It also may allow for many consumers to consider refinancing higher interest debt into a lower interest credit product such as a personal loan or home equity loan.”

If you are struggling to pay off debt, you could consider using a personal loan to consolidate your payments at a lower interest rate, saving you money each month. You can visit Credible to find your personalized interest rate without affecting your credit score.

SHOULD YOU BUY A HOUSE IN 2024? HERE’S WHAT YOU NEED TO KNOW

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Buffett denies social media rumors after Trump shares wild claim that investor backs president crashing market

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Berkshire Hathaway responds to 'false reports' on social media

Warren Buffett went on the record Friday to deny social media posts after President Donald Trump shared on Truth Social a fan video that claimed the president is tanking the stock market on purpose with the endorsement of the legendary investor.

Trump on Friday shared an outlandish social media video that defends his recent policy decisions by arguing he is deliberately taking down the market as a strategic play to force lower interest and mortgage rates.

“Trump is crashing the stock market by 20% this month, but he’s doing it on purpose,” alleged the video, which Trump posted on his Truth Social account.

The video’s narrator then falsely states, “And this is why Warren Buffett just said, ‘Trump is making the best economic moves he’s seen in over 50 years.'”

The president shared a link to an X post from the account @AmericaPapaBear, a self-described “Trumper to the end.” The X post itself appears to be a repost of a weeks-old TikTok video from user @wnnsa11. The video has been shared more than 2,000 times on Truth Social and nearly 10,000 times on X.

Buffett, 94, didn’t single out any specific posts, but his conglomerate Berkshire Hathaway outright rejected all comments claimed to be made by him.

“There are reports currently circulating on social media (including Twitter, Facebook and Tik Tok) regarding comments allegedly made by Warren E. Buffett. All such reports are false,” the company said in a statement Friday.

CNBC’s Becky Quick spoke to Buffett Friday about this statement and he said he wanted to knock down misinformation in an age where false rumors can be blasted around instantaneously. Buffett told Quick that he won’t make any commentary related to the markets, the economy or tariffs between now and Berkshire’s annual meeting on May 3.

‘A tax on goods’

While Buffett hasn’t spoken about this week’s imposition of sweeping tariffs from the Trump administration, his view on such things has pretty much always been negative. Just in March, the Berkshire CEO and chairman called tariffs “an act of war, to some degree.”

“Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!” Buffett said in the news interview with a laugh. “And then what? You always have to ask that question in economics. You always say, ‘And then what?'”

During Trump’s first term, Buffett opined at length in 2018 and 2019 about the trade conflicts that erupted, warning that the Republican’s aggressive moves could cause negative consequences globally.

“If we actually have a trade war, it will be bad for the whole world … everything intersects in the world,” Buffett said in a CNBC interview in 2019. “A world that adjusts to something very close to free trade … more people will live better than in a world with significant tariffs and shifting tariffs over time.”

Buffett has been in a defensive mode over the past year as he rapidly dumped stocks and raised a record amount of cash exceeding $300 billion. His conglomerate has a big U.S. focus and has large businesses in insurance, railroads, manufacturing, energy and retail.

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Stocks making the biggest moves midday: PLTR, CAT, AAPL JPM

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Powell sees tariffs raising inflation and says Fed will wait before further rate moves

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US Federal Reserve Chair Jerome Powell holds a press conference after the Monetary Policy Committee meeting, at the Federal Reserve in Washington, DC on March 19, 2025. 

Roberto Schmidt | Afp | Getty Images

Federal Reserve Chair Jerome Powell said Friday that he expects President Donald Trump’s tariffs to raise inflation and lower growth, and indicated that the central bank won’t move on interest rates until it gets a clearer picture on the ultimate impacts.

In a speech delivered before business journalists in Arlington, Va., Powell said the Fed faces a “highly uncertain outlook” because of the new reciprocal levies the president announced Wednesday.

Though he said the economy currently looks strong, he stressed the threat that tariffs pose and indicated that the Fed will be focused on keeping inflation in check.

“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said in prepared remarks. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy.”

The remarks came shortly after Trump called on Powell to “stop playing politics” and cut interest rates because inflation is down.

There’s been a torrent of selling on Wall Street following the Trump announcement of 10% across-the-board tariffs, along with a menu of reciprocal charges that are much higher for many key trading partners.

Powell noted that the announced tariffs were “significantly larger than expected.”

“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he said. “The size and duration of these effects remain uncertain.”

Focused on inflation

While Powell was circumspect about how the Fed will react to the changes, markets are pricing in an aggressive set of interest rate cuts starting in June, with a rising likelihood that the central bank will slice at least a full percentage point off its key borrowing rate by the end of the year, according to CME Group data.

However, the Fed is charged with keeping inflation anchored with full employment.

Powell stressed that meeting the inflation side of its mandate will require keeping inflation expectations in check, something that might not be easy to do with Trump lobbing tariffs at U.S. trading partners, some of whom already have announced retaliatory measures.

A greater focus on inflation also would be likely to deter the Fed from easing policy until it assesses what longer-term impact tariffs will have on prices. Typically, policymakers view tariffs as just a temporary rise in prices and not a fundamental inflation driver, but the broad nature of Trump’s move could change that perspective.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Powell said. “Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to pass through fully to prices.”

Core inflation ran at a 2.8% annual rate in February, part of a general moderating pattern that is nonetheless still well above the Fed’s 2% target.

In spite of the elevated anxiety over tariffs, Powell said the economy for now “is still in a good place,” with a solid labor market. However, he mentioned recent consumer surveys showing rising concerns about inflation and dimming expectations for future growth, pointing out that longer-term inflation expectations are still in line with the Fed’s objectives.

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